Index Tankan – One of the Most Important Japanese Economical Indicator in Forex Trading

Oct 052011
 

Japanese trading session is very important and powerful in Forex trading. Asian economy including Singapore is very influenced by Japan. Singapore Forex traders should pay much attention on the Japanese economical news and indicators.

Index Tankan is one of the most important economical indicators in Japan. This indicator is used to describe the business environment in the country. It shows the most accurate situation of the industry sector in large-scale production. Tankan includes such data as the country’s orders, production, employment, inventories and prices for exports and imports.

With this leading indicator a Forex trader can make a prediction on the volume of industrial production, determine the index of producer prices, order volumes of industrial enterprises, employment, as well as calculate the values of other macroeconomic indicators of the Japanese economy. Tankan covers all sides of the economy, not only the Japanese islands, but also affects the whole Pacific region. The first report on the index was launched in 1957.

The growth of this leading indicator shows the acceleration of growth of Japanese economy. Together with the increase of Tankan the country’s GDP will increase too, which is a good signal.

Tankan and other indices such as the PMI (index of optimism of purchasing managers) and ISM (Institute of Management index of supplies, Institute for Supply Management) are very close to each other, because the Tankan also allows you to define the situation of the Japanese business prospects for growth. The indices differ only in the calculation algorithms.

Tankan index is calculated and published by the Department of Statistical Research of the Central Bank of Japan once per quarter. It is measured in basis points. It includes the data of 9000 enterprises, which are divided into four main categories: major, large, medium and small. The evaluation of the enterprises is carried out by the following economic characteristics:
1. working conditions in terms of business
2. Sales and production
3. Supply and demand, price levels
4. Profit
5. Direct investment and production capacity
6. Employment
7. Terms of taxation.

Considering these indicators, the Bank of Japan carries out the calculation of the so-called diffuse indices:
1. The quality of business conditions
2. Sufficiency of the demand conditions, inventory levels, production capacity and employment
3. Financial conditions for businesses.

Despite of some subjectivity of the Tankan, the index has a very strong forecasting ability and good correlation with the basic parameters of the economic cycle. JPY is always very responsive to the release of this indicator. This is a great indicator for Singapore Forex traders to trade JPY against other currency pairs.

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Economical Factors That Cause A Currency Price Changes

Feb 262011
 

As economical factors show a level of country’s development, they have a direct influence on the rates of a national currency.

There are main economical factors and events that every Forex trader working with the fundamental analysis must know and follow.

1. Official reports showing the level of economic development.

Stable economic growth is an indispensable condition for attracting investment flows into the country. Accordingly, this leads to an increase in demand for the national currency of the country, whose economy is attractive to investors. Such reports usually include an assessment of trade and balance of payments, inflation, unemployment, gross of the national product, etc.

2. The results of trade negotiations.

Trade negotiations are an important part of the economic policy of any country. In particular, the ratio of indicators such as imports and exports, gives such an important amount of economic development as the trade deficit. For example, for few years the USA has experienced the trade deficit, which plays a significant role in the collapse of the USD against European currencies. The results of trade negotiations are immediately reflected in the Forex market.

3. Central Bank meetings.

The main activity of the Central Bank is to regulate the domestic economical situation in the country. Another function of the Central Bank is to control internal and external value of the currency. For this reason, any meeting of the Central Bank is an important event for the foreign exchange market participants. Different activities of interest rates regulation represent one of the main ways to stimulate or, conversely, slow down the growth of the economical development. Accordingly, a consequence of these activities is the amount of foreign investment and the attractiveness of government bonds. These two factors have the biggest influence on the valuation of the national currency.

4. The speech of the Presidents, Heads of Central Banks and leading analysts (the subject is a real and potential market situation).

In most cases, this factor has an immediate response in the Forex market. For example, September 29, 1995 Lumier, managing the Swiss National Bank, spoke about the fact that Switzerland is not interested in the power of its own currency. As a result, this statement has caused a sharp raise of the Swiss franc.

Another example is the speech of the well-known economist Bergstein. In his speech he noted the decreasing of the USA trade balance and unjustified expectations of the supplementary budget in Japan. As a result, within two days a catastrophic collapse of the Japanese yen was recorded.

Quite often, especially when there is a certain economic climate, a speech of a person can not only lead to the change in the behavior of a national currency, but also dramatically change the entire Forex market.

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The Employment Rate in Forex Trading

Dec 032010
 

The employment rate is the most important macro-economic indicators in Forex trading that is used in the Fundamental analysis of the market and can be found in the economical calendar. The situation of the labor market has a considerable influence on the national currency of any country. The particular attention to employment must be given to the countries that are in the transitional phases of the economy, in particular, the transition from recession to recovery.

Forex traders must watch the parameters of employment of those countries which are the key members of the Forex market. Particular attention is paid to employment in the United States because the dollar remains the principal currency in the Forex and the news of employment in USA usually have a significant impact on currencies’ rates related to the dollar.

The change of the employed population in the United States is characterized by two parameters:

Nonfarm payrolls – the number of jobs (excluding temporary positions related to agriculture), the rate affects about 340,000 companies in 500 industries;

Household employment – the number of employed people among any group of people with different specialties.

These indicators cover a number of jobs and the employed population in the USA. They are extremely important to accurately determine the extent of unemployment. In addition, the figure Nonfarm payrolls extremely powerful indicator in Forex trading, which determines the dynamics of employment in America. Its increase characterizes the employment growth and leads to an increase of the USD price.

The unemployment rate is at the heart of labor market indicators. It is calculated out of the ratio of unemployed to the number of all employed people. Accordingly, the unemployment rate also affects the rate of national currency. Decrease in unemployment leads to an increase in foreign currency and vice versa. In addition, the unemployment rate depends on the growth of GDP (Okun law), which is also one of the most important macroeconomic indicators. The increase in the unemployment rate by 1% reduces GDP’s growth by 2%. Usually the analysis of the unemployment rate are done with the numbers that show the size of the Nonfarm payrolls index.

Statistical data of the unemployment rate in the USA and the indicator Nonfarm payrolls are available from 08:30 am Washington time every first Friday of the month.

The beginning of the recession allows you to watch the duration of the workweek. If the working week is reduced, then the country has an economic crisis.

The average hourly wage helps to define the beginning of inflation. A sharp increase in wages, outstripping productivity also indicates the beginning of inflation in the country.

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