Friday. December 21 st. 2007

For those you who are unfamiliar withe the above, this is a quarterly survey released by the Bank of Japan, and provides a barometer of consumer confidence and sentiment. Its results can offer us important clues on the future course of monetary policy and interest rates. If you would like further details please take a look at the currency trading site which gives an explanation: Tankan Survey

The survey is a comprehensive and widely respected report on business confidence in Japan and is highly regarded by both international investors and multinationals for the latest on the state of the Japanese economy and its forecasts of business activity in the months ahead. Given the current state of the financial markets the numbers released with this survey will be particularly significant.

This quarters forecast is 21, down from 23 in October and is expected to show that business confidence continues to be eroded in the fourth quarter on growing concerns about earnings and rising procurement costs. This is unlikely to lead to any interest rate rise later this month and will probably delay any rise until the middle of next year. Japanese interest rates are currently 0.5%!

For the forex market the Tankan is particularly important because the survey offers a detailed look at what the business community is thinking with regard to future capital investments, employment and predictions of where the yen will likely be valued in the future.

Given the amount of money which has poured into carry trade pairs featuring the yen it is not difficult to see how important this survey has become to forex traders.

A look through the yen pairs reveals a very mixed picture and they continue to reflect the uncertainty and volatility of current market conditions. However, once this survey has been published and the markets achieve a modicum of equilibrium we may be able to determine whether the yen remains weak and therefore a magnet for investors in the carry trade or whether the time has come to consider Japan as an alternative to China and other emerging markets.

The dollar yen chart is particularly interesting as it would appear that the dollar is once again gaining ground. However, until all the skeletons have tumbled out of the sub prime closet and we are done with thin and volatile end of year markets, it is impossible to judge whether in fact any rise in the dollar is in fact a selling opportunity.