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.
Key Quotes
“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.”
