Japan’s Outlook Improves as More China Easing Expected

(eToro Blog) Over the weekend, the Chinese Federation of Logistics and Purchasing released official Manufacturing PMI data for June which showed a decline to 50.2 from the previous month’s reading of 50.4, though the reading bested the consensus call of 49.8. Earlier today, Markit Economics released HSBC’s PMI manufacturing sector data for last month, and at 48.2, the reading remains firmly below the 50.0 threshold which denotes a sector contraction. Records show that the downturn in China’s manufacturing sector activity is now at a 7-month low.

Combined, the data, which encompasses larger, state-controlled industries as well as smaller, privately held enterprises, has given rise to speculation that Beijing and the People’s Bank of China will step up fiscal and monetary efforts to reach a more accommodative stance in order to spur the economy.

Some analysts expect that Beijing will make a move later this month, given that easing measures will take some time to work through the system and be reflected in economic data points. From the current and recent data, analysts say that it is likely China’s target growth of 7.5% won’t be achievable without some additional impetus. A recent poll of economists suggests that China’s economy could slow to 8.2% in 2012, which would be the worst annual growth rate in well more than a decade. Markets are already pricing in a reduction in the reserve requirement ratio for Chinese banks, which has already been lowered twice this year.

Any easing by China will trickle down to the Pacific Rim countries first and then beyond; Japan is one recipient. In Japan, the economic sentiment has improved according to the results gleaned from the various Tankan polls which are taken from respondents in Japan’s major corporations. The headline survey, the Tankan Large Manufacturing Index, shows an improvement in the second quarter reading from (negative) -4 in the first quarter to -1, while the consensus of respondents polled expected negative sentiment to hold unchanged. Likewise, the Large Manufacturing Outlook improved to 1 from (negative) -3 which was also the consensus forecast. According to a footnote in the data, negative readings indicate that pessimistic responses outnumbered optimistic ones.

The USD/JPY pair is lower at 79.78165, while the EUR/JPY pair is lower at 100.5230; sentiment on OpenBook is predominantly bullish for both pairs. OpenBook trader collins3060 from Australia has had some good recent success in trading the USD/JPY pairs, with favorable results also seen in other Yen crosses including the CHF/JPY and the AUD/JPY. The trader recently closed a short position with a 21.35% gain; the trader’s 0.5% allocation in the pair has resulted in the portfolio’s highest gain of 65.9% over the past month. A 1% allocation in the CHF/JPY pair resulted in a 58.1% gain while a 1% in the AUD/JPY pair resulted in a 27.7% gain.

Pitting safe haven against safe haven, OpenBook trader mikimano80 from Hungary had a profitable long in the CHF/JPY pair. Over the past quarter the trader’s 6.6% allocation has led the gainers in the portfolio with a 37.1% gain. Over the same period, the trader’s entire portfolio returned a profit of 2.6%; the lowest among all reporting periods, however. For the past week, the trader had a 41.3% gain, which improved to 89.6%; at 6-months the trader’s profit was 214.7% and at 12-months was over 300%.

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