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4 Jul 2014
Corporate flows to remain JPY negative - Nomura
FXStreet (Bali) - According to Nomura FX Strategists, corporate flows should remain JPY negative going forward.
Key Quotes
"While Japanese exports have been lacklustre even after JPY weakness, sales volume of foreign subsidiaries of Japanese firms remains relatively strong, according to the quarterly survey of overseas subsidiaries released by the METI last week."
"May real exports declined by 3.8% m-o-m, as exports of transport equipment declined substantially (-7.2%, see "Japan trade statistics: May 2014", 18 June 2014). Thanks to weaker imports after the consumption tax hike in April, trade deficits have started shrinking, but weak export momentum is slowing the recovery in trade balances. Even though the BOJ has upgraded its overseas economic assessment slightly at the latest meeting, Governor Kuroda acknowledged the recent weakness of export momentum during his press conference."
"However, the quarterly survey suggests that the sales volume of overseas subsidiaries increased in Q1 from the previous quarter by 3.4% in JPY terms and by 0.9% in USD terms. Overseas subsidiaries' sales from Japan declined by 3.6% in JPY terms over the same period, while both sales from domestic countries (e.g., US subsidiary's sales from the US) and the third countries (e.g., US subsidiary's sales from Europe) rose. Transport equipment industry, which accounts for more than half of total sales of overseas subsidiaries, recorded a strong increase in sales (+8.6%). Japanese companies have been increasing the share of overseas production, which is likely to be gradually widening the gap between exports and sales volume of overseas subsidiaries."
"Japanese companies still plan to increase the overseas production ratio, which would slow the recovery in exports and trade balances going forward. As a result, JPY selling from importers is likely to remain stronger than exporters' JPY buying flows. On top of that, FDI outflows generated by the increase in the overseas production ratio will be JPY negative going forward and result in negative corporate flows, in our view."
Key Quotes
"While Japanese exports have been lacklustre even after JPY weakness, sales volume of foreign subsidiaries of Japanese firms remains relatively strong, according to the quarterly survey of overseas subsidiaries released by the METI last week."
"May real exports declined by 3.8% m-o-m, as exports of transport equipment declined substantially (-7.2%, see "Japan trade statistics: May 2014", 18 June 2014). Thanks to weaker imports after the consumption tax hike in April, trade deficits have started shrinking, but weak export momentum is slowing the recovery in trade balances. Even though the BOJ has upgraded its overseas economic assessment slightly at the latest meeting, Governor Kuroda acknowledged the recent weakness of export momentum during his press conference."
"However, the quarterly survey suggests that the sales volume of overseas subsidiaries increased in Q1 from the previous quarter by 3.4% in JPY terms and by 0.9% in USD terms. Overseas subsidiaries' sales from Japan declined by 3.6% in JPY terms over the same period, while both sales from domestic countries (e.g., US subsidiary's sales from the US) and the third countries (e.g., US subsidiary's sales from Europe) rose. Transport equipment industry, which accounts for more than half of total sales of overseas subsidiaries, recorded a strong increase in sales (+8.6%). Japanese companies have been increasing the share of overseas production, which is likely to be gradually widening the gap between exports and sales volume of overseas subsidiaries."
"Japanese companies still plan to increase the overseas production ratio, which would slow the recovery in exports and trade balances going forward. As a result, JPY selling from importers is likely to remain stronger than exporters' JPY buying flows. On top of that, FDI outflows generated by the increase in the overseas production ratio will be JPY negative going forward and result in negative corporate flows, in our view."