The yen depreciation in May was driven by global and technical factors, and not by Japanese fundamentals. Japan's Q1 real GDP growth surprised to the upside, current account is recording continuous surplus, and wages are showing signs of improvement.



Furthermore, expectations for additional BoJ easing have declined. This week, Bank of Japan (BoJ) Tankan report (Wednesday) and May Monthly Labor Survey (Tuesday) will provide the latest picture on state of the Japanese economy.



In terms of Tankan report, the Large Manufacturer DI is expected to remain unchanged at +12 (consensus: +12), likely due to sluggish exports, while looking for some improvement in Large Non-Manufacturer DI to +20 (consensus: +22) from +19 in April survey. Besides these headline numbers, FY2015 capex plans, inventory conditions DI, and inflation outlook of enterprises would be the key focus. Inflation outlook of enterprises (released on Thursday) will be relevant in gauging monetary policy outlook (in March, one-year forecast inflation was at +1.4%, unchanged from December survey).



With regards to May Monthly Labor Survey, wages per worker is expected to further accelerate to +0.8% y/y (consensus: +0.7%) from +0.7% in April. Wages have gotten off to a fairly steady start in FY2015 as scheduled wages (i.e., base salary) should begin to reflect the effect of the base wage hikes by around July. These data should support the view of ongoing recovery, which fundamentally do not support further JPY depreciation.



The global factors should continue to drive USDJPY, including changes in Fed hike expectations with important US data releases this week and fluctuations in risk sentiment with Greek headlines.