Coming up tomorrow is the release of some important data for gauging Japan’s economic performance, as we are still waiting for Q1 GDP numbers. The incoming data includes February household spending and labor cash earnings.
It’s the last bit of data that we have coming out of Japan ahead of the weekend, with a potential for more volatility. This is because China, Hong Kong, and Taiwan are closed that day for the Ching Ming Festival. Let’s go over some things that might help your JPY trading ahead of and after this important economic release.
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Schedule and Expectations
All the data is expected for release on Friday at 01:30 CET (which for those on the East Coast, comes out to be Thursday at 19:30 EST.) So, that’s when we could see the most economic associated volatility in JPY pairs.
The market generally focuses on the year over year figure for household spending. Expectations are for it to increase by 0.3% compared to February of 2018. This compares to a jump of 2.0% registered prior. On a month over month basis, we can expect household spending to drop by 1.7%, compared to a 0.7% increase prior.
The increase in January and the anticipated increase for February are being attributed to higher winter bonuses coupled with a pause in price gains. Meanwhile, other data continues to show general weakness such as services PMI and export orders. A further increase would mark the third consecutive one, and might give some hope of a modest economic recovery.
It’s Not All Good News
In a note to clients, Mitsubishi UFJ analyst Shinichiro Kobayashi said that consumer spending wasn’t bad but “lacks momentum.” He added:
“Domestic demand is not strong enough to offset weakness in foreign demand.“
Consumer spending accounts for about 60% of the Japanese economy. Therefore, a modest improvement is not comparable to the larger drop in exports and supports the idea of a contraction in the first quarter. A substantial beat in household spending data would help allay those fears and support the yen.
What has been driving yen action lately has mostly been trade-related. Nikkei reported yesterday that Japan was also pressuring China over the intellectual property issue. This seems to be the major hold-up in US-Chinese tariff discussions.
Export figures are unlikely to improve while the trade negotiations continue. And instead of news of progress, we actually had expressions of concern from Japanese officials that their US counterparts were likely to focus on car exports.
A Definitive Direction Not Yet Set
On the other hand, the press has been talking up a scheduled meeting between US President Trump and the Vice Premier of China at the conclusion of the latest round of trade talks later today. But, a meeting between the trade delegation and the head of state has been routine previously. Nonetheless, reporters speculate that Trump will announce a forthcoming meeting with Xi.
Also yesterday, the Bank of Japan noted that the fourth quarter output gap jumped to 2.23 from 1.26 prior. This marked the highest level since 1992. This is a measure of economic activity and the potential for price changes in the long term.
Officials continue to insist that Japan is in a moderate recovery. Finance Minister Aso reiterated that stance as late as last Monday, affirming that the sales tax hike would occur in October as planned. This was despite speculation among analysts that it would be postponed for the third time.
The theme persists, though, that Japan is subject to external factors. What’s largely been driving household spending has been on home renovation. This has led some analysts to suggest that the rise in household spending is in advance of the tax hike.