Japanese small business confidence drops to worst in seven months

Amid global market turmoil in the world and weakness in China, Japanese small business confidence started the year in downbeat note, data compiled by Shoko Chukin Bank shows.

The reading is an important gauge of business mood in Japan, since it surveys about 1000 companies.

The reading dropped to 47.2, lowest level since June last year. A reading below 50 marks pessimism. Weakness in Chinese economy has been the key driver of the mood, which is leading to a slowdown in Japan's own economy.

In Japan, while big export oriented companies benefited from weaker Yen, small businesses largely suffered from sales tax hike from 5-8%, which has reduced demand significantly, when passed on to consumers. So last time, the index showed optimism was back in 2014, before the sales tax hike.

We, at FxWirePro, expect Japan to continue on the path of sluggish pace of growth and with such growth outlook, wages to remain sluggish too, which in turn will make Bank of Japan (BOJ) inflation target, very difficult to achieve.

Yen is currently trading at 118.3 per Dollar and risk appetite of the market is likely to remain key driver of it.