JPY: Deciphering the Pre-BoJ Data Deluge - ING
James Smith, Economist at ING, suggests that the raft of data due just
hours before the BoJ releases its April decision is likely to paint a
fairly bleak picture, with consumption and inflation both losing steam.
“As is often the case, a wave of key economic data (inflation, labour market and consumption) is released just a few hours before the BoJ’s announcement, making it particularly market relevant.
The most important release, CPI, is likely to show that the headline rate ticked lower again to 0.1% YoY, based on Tokyo’s data released with a one-month lead. As ever though, the BoJ’s focus will be their own measure of core CPI (excl. fresh food and energy), which we expect to come in at or below last month’s reading of 1.1%. As the lagged effect of previous JPY depreciation starts to filter out of the data, this CPI measure should start to trend downwards throughout this year; the latest FX appreciation will only accelerate this process.
On the surface, the labour market data is one economic bright spot, with the unemployment rate likely to remain at its post-1997 low of 3.3%. Although encouraging, virtually all of the gains have come from part-time employment (up 9.4% from 2010) and full-time jobs have been slowly scaled back.
Compare this to the US, where full-time jobs have made up the bulk of employment growth (part-time jobs have remained broadly constant). Thus, unlike in the US, tighter labour market conditions in Japan are unlikely to exert significant upward pressure on wages. Indeed, future wage growth is likely to be highly sensitive to exchange rate movements.
This has important implications for consumption. The recent hit to equity markets, combined with disappointing spring wage negotiations, may adversely affect spending this year. March’s Household Spending survey, which is relevant for the GDP calculations, is likely to have increased, which together with earlier readings, would put 1Q consumption at around 0.4% QoQ. This may help the economy to narrowly avoid a dip, although wouldn’t fully offset the weather-induced fall in consumer spending during 4Q. Indeed, in year-on-year terms, household expenditure is still down by around 4%.
Thus, when taken together, this data will emphasise the uncertainty surrounding the economic outlook. With markets increasingly pricing-in further BoJ stimulus, we expect an increase in purchases of risk assets and a move to negative rates on the Loan Support Programme this week.”