BoJ's Tankan Shows Optimism Slips among Large Manufacturers; Stocks Drop

The Bank of Japan's quarterly tankan (short-term economic outlook) released today, showed a dip in business confidence among large manufacturers. The headline index reading of 23, is the first drop in a year, down from 25 in Dec. and short of economists' average estimate of 24. The +23 reading means businesses with a positive outlook outnumbered those with a negative forecast, by 23%. Stocks initially rallied, as today was the start of the new fiscal year, and corporate spending plans among large manufacturers came in at +2.9%, beating economists' estimates. However, stocks came under selling pressure in afternoon trading, in what the director of sales at Meiwa Securities called a "nameless fear following the last global stock sell-off." The Nikkei 225 lost 1.5% to 17,028.41, the broader TOPIX fell 1.8% to 1,682.49 and the yen last traded at ¥117.8/$1. Companies seem to be most concerned about a slowing U.S. economy and the possibility of a stronger yen. The BoJ is expected to maintain its gradualist approach, with another rate hike unlikely until after the upper house elections in July.

Sources: Bloomberg, MarketWatch, Reuters [i, ii]
Commentary: The “Euro /Yen” Tug-of-War • BoJ to Maintain Accommodative Policy; Watching Real Estate Prices • Japan: Weekly and Year-to-date ETF and CEF Performance
Stocks/ETFs to watch: Toyota (TM), Sony (SNE), Canon (CAJ), Mitsubishi UFJ FG (MTU), Mizuho FG (MFG). ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 Index (ITF), The Japan Equity Fund, Inc. (JEQ)
Related: Tankan Outline and Summary [pdf]

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