Japan Update

Investors should be aware of three Japanese developments today.  

First, the government unexpectedly revised  Oct-Dec 2012 GDP figures due to an error in calculation.  Nominal growth was revised to -0.1% from -0.3%.  This revision was a function of  considerably less imports and exports and less deflation than initially estimated. 

Specifically, exports fell 1.7%, not the 0.3% initially estimated, while imports rose only 0.5%, not 3.0%.  The GDP deflator showed prices fell 0.2% not 0.4%.    Kyodo Press reported that the Japanese cabinet released the corrections after being informed by an economist of a possible error. 

Second, the large take down of the US Treasury's 3-year note auction by indirect bidders was seen by some, as indicative of Japanese interest.  Indirect bidders bought 30.7% of the sale, which is the highest over the past eleven auctions.  A strong indirect bid at Wednesday's 10-year note sale will underpin suspicions that Japanese institutional investors are beginning to implement the new allocation strategy.  Weekly MOF portfolio flow data, will be released Thursday.  It has shown Japanese investors have been persistent sellers of foreign bonds since the start of the 2013. 

On Thursday, Japan will also report trade and current account figures for March.  The seasonally adjusted current account recorded a small deficit in February but likely swung back into surplus.  The Bloomberg consensus expects the largest surplus since last August of about JPY481 bln.  

Third, the US dollar continues to carve out a consolidation pattern against the yen.   The dollar's recent high was actually recorded on April 11 near JPY99.95.  A lower high was recorded on this week at JPY99.45.   Some yen bears are getting frustrated.  In the CME futures, the gross short yen speculative position peaked in mid-March near 145k contracts.  As of  the end of April, the gross short position had been culled by a third to a still lofty 96k contracts.   We suspect a break of the JPY98.50 area now could trigger another round of yen short covering.