Coming up on Friday, if you are in Europe, or Thursday if you are in the Americas, we have two bits of important data that may have an impact on the JPY and its respective pairs.
With most of Asia closed for the Lunar New Year, a corresponding drop in liquidity is to be expected. This could heighten the possibility of more volatility during the Asian session in response to news releases.
We’ll go in chronological order of things to keep in mind ahead of the important data releases.
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Overall Household Spending
We start at 00:30 CET (18:30 EST) with Overall Household Spending, which is used as a gauge of consumer optimism.
If consumers think that difficult times are ahead, they will prefer to try to save. Consumers are also the largest component of the economy, so increasing consumer spending is considered a proxy for the economy.
Higher consumer spending is generally seen to support the JPY, while lower spending will have the opposite effect. However, this number is usually priced into the market, so a move isn’t really expected unless there is a major beat or miss of expectations.
Speaking of which, the consensus among analysts is for consumer spending to come in at -0.1% y/y, which would be an improvement over the -0.6% registered in the prior month.
This data is also important for fiscal policy, especially in regards to the now twice delayed sales tax hike. An additional 2% increase to 10% sales tax has been approved, but the government has held back on implementation over fears it would affect consumer sentiment and the economy.
Currently, it’s scheduled to go into effect in October, but a continuing string of poor household spending performance could provide further justification to delay the hike once more.
Twenty minutes later we have the major event of the session for currency markets, which is the release of Japanese current account data.
Arguably current account is one of the data releases that has the most direct relation to forex, since it’s a measure of the difference in value between exports and imports of goods, services and interest (the trade balance measures the same but only for goods).
Forex is fundamentally governed by currency flows, and this is the best measure of actual value exchange for the entire economy.
Higher values are seen as positive for the currency since more value is leaving the country. Therefore there needs to be a compensating increase in capital flow to pay for it. Lower values are considered negative. This figure is extra important because Japan is a major source of carry trades.
The current account has been trickling down since July of last year, but it has remained positive since early 2014. This is December data, so it will undoubtedly be affected by the holidays.
Also, we had the trade balance from the same period reported on Jan 22, showing the third consecutive trade deficit, which will drag on the comprehensive, current account figure. Even so, last month’s number came in above expectations despite a much bigger trade deficit.
The consensus of expectations is for a current account surplus of ¥430B, which would be the lowest since the beginning of 2017 – hardly a good sign. However, this is non seasonally adjusted, and there is a significant swing in the winter months. But the bottom is usually not seen until March, and if the data comes in below ¥400B, it would be a bad start to the winter trend.
On the positive side, December saw the Japanese terms of trade jump nearly 3 points to 96.2, the first increase since the beginning of last year.
While this is still near the lowest it has been since 2014, there is some hope that the current account might surprise to the upside. And let’s not forget that if household spending is depressed, that implies fewer imports, which also supports a better current account.