Yen Rebounds Further On Encouraging Tankan

The Japanese yen extends rebound in Asian session today with the boost from an encouraging Q4 Tankan survey. The large manufactures index rose to 16 versus expectation of 15, up from 12. That was the highest reading in six years since 2008. Improvements were also seen in sentiments of medium and small companies, which rose to 6 and 1. Large Non-manufacturing index improved to 20, also beat expectation of 15, up from 14. Medium and small non-manufacturing sentiments also improved to 11 and 4 respectively. Large companies are planning to increase capital spending by 4.6% in 2014. The results showed the the so Abenomics are not only helping large companies, but also spreading to businesses of all sizes. And overall, the survey points to further expansion in the Japanese economy through first half of 2014.

Technically, we'd like to point out that the GBP/JPY's breach of 167.52 minor support today has near term bearish implications and suggests trend reversal for 165.86 support and below. The USD/JPY also dips further and extends the fall from 103.92. Last week's breach of 103.73 to new 2013 high in the USD/JPY could prove to be a false break and focus will be on 102.14 minor support this week for confirmation of near term reversal. The EUR/JPY was a bit more resilient but also weakens mildly today with focus on 140.81 minor support this week. And a break there will also indicate near term reversal. The strongly overbought yen crosses could finally pare back some on this year's strong rally before year end.

Elsewhere, dollar is mildly lower against the euro and Swiss franc again today. The FOMC announcement will be the main focus this week and eyes are on whether Fed will provide some year-end firework by announcing tapering of the asset purchase. Or, Fed would hold their hands and wait for March meeting to trigger the move. Opinions are divided with economists providing strong arguments for taper and not to taper in December. Stocks in US pulled back sharply as investors lightened up their position ahead of this key event risk and the year end holidays. We'd expect some more consolidation in the dollar in the first part of the week.

On the data front, New Zealand Westpac consumer confidence improved to 120.1 in Q4. UK rightmove house price dropped -1.9% mom in December. China HSBC PMI manufacturing was unchanged at 50.5 in December. PMI data will be a major focus in European session General improvements are expected in eurozone PMIs and attention would be on whether France will give us a surprise with PMIs climbing back above 50 level. In US session, empire state manufacturing, TIC capital flow, industrial production will be featured.