Japanese core machinery orders surged in March to 16.1% yy (and should rise in April – June too) easily surpassing modest expectations, notes BNP Paribas.
“This data series is a leading indicator of capital spending (usually 6 to 9 months ahead) such investment could shield the economy from the pain of April’s sales tax hike. This morning’s data follows robust Q1 growth of 5.9% (SAAR annualised) and strong capital spending in the quarter. The data also suggests that Japanese businesses are more confidenet of a sustainable economic recovery – a key goal of Abenomics,” BNP Paribas adds.
“For the JPY, confidenceinI the domestic economy is often a precursor to increased demand for foreign investment – both FDI (foreign direct investment) and portfolio investment. Such flows have eluded the market so far and likely explain why the JPY has not weakened independently of USD and EUR strength,” BNP Paribas argues.
“We are bullish USDJPY and target 110 by year end. Stronger Japanese data (accompanied by super easy monetary policy) is a requirement for this view,” BNP Paribas argues.