Manufacturing in Japan is starting to slow down. The Bank of Japan’s Tankan indicator slipped to 24 from 25, its first decline since Q1 2016. The decline is felt in all major sectors, from textile, paper, chemicals, food and metals. Tankan’s Q1 non-manufacturing indicator remains stable at 23, weakened by construction, rental, wholesale trade, transport and information services.
Against an appreciating yen (year-to-date: EUR/JPY: -3.42%, USD/JPY -5.87%, GBP/JPY: -2.16%) and trade war tensions, business confidence is slightly shaken. Still, Japan’s trade position is favourable. The February trade balance remains at JPY 2.55 billion, with exports up 1.80%, and February’s retail sales expanded 0.40% (previous: -1.80%). We expect China-US trade sanctions to ease in coming weeks, which would trigger recovery for Japanese exporters. Yesterday’s US equities 2% drop knocked down the USD/JPY by 0.37%, confirming JPY’s safe haven status. We expect USD/JPY at 106.06 to recover slightly toward the