Exports Can Speak Volumes
The most recent survey, known as the Tankan survey, by the Bank of Japan (BOJ) of what levels major Japanese exporters are expecting to prevail on USDJPY in the second half of Japan’s fiscal year 2017 was taken between 29 August and 29 September. As Japan’s financial year always begins on April 1, the second half runs from October 1 though to the end of March. With that in mind traders should be aware that the latest Tankan showed major Japanese exporters holding a conservative assumption of 109.12 for USDJPY in the second half of Japan’s financial year. Additionally, as Japan’s Nomura Bank added in a note on Monday, “July-September financial results of major manufacturers also suggest the assumed USDJPY rate remains mostly around 109-111.” Given its current spot level that means USDJPY is at present trading well above Japanese exporters’ assumed budget rates, even allowing for the negative forward points that would have to be factored in if hedges were put on with longer tenors. Nomura’s conclusion is that, while Japanese exporters remain cautious about risk events that could push the yen higher, “as range-trading continues for the time being, exporters are likely to be just sellers of USD at a basically constant pace, but they may not rush to sell, in [Nomura’s] view.” But there’s another factor which might also come into play.
The higher USDJPY goes the better it is for Japan’s exporters from a hedging perspective and, given that those same exporters have headroom on spot compared to their present budget rates, there’s no particular compulsion for those exporters to lean that aggressively against a rising US dollar. After all, who sells something today if there’s every expectation the price for the same thing will be higher tomorrow. If nothing else, given the importance (even if it is sometimes somewhat overstated) attributed to the influence of Japanese exporter activity in USDJPY, having a rough idea of their likely intentions might help traders formulate their own strategies in the pair.
Written by Neal Kimberley, External Currency Analyst.