We have a few important data points coming up over the next couple of days that could move JPY. Chief among them is retail sales and employment data. It’s only been a week since the last BOJ meeting, so data has a stronger impact on the markets.
Analysts will also be looking for confirmation that the data is panning out according to BOJ estimates. Changes from expectations would raise questions as to what the central bank can do to help prop up the world’s third-largest economy.
The Data and Trends
Tomorrow early in the morning, or today late at night if you are in the Americas, we get the release of Retail Sales data. Usually, it’s the monthly figure that moves the markets in the case of a discrepancy. The consensus of expectations is that May retail sales shrank by 0.6% compared to staying flat the prior month. This would bring annualized retail sales to just 0.6% growth.
Retail sales generally fluctuate around 0 quite a bit, with -1.5% to +1.5%, something of a “normal” range. The trend has been to show barely noticeable growth for several years now. A result beyond that range is not expected by any analyst. The closer we get to boundaries of the range, the more likely there will be a stronger reaction in the market.
Japan’s Sales Problem
An increase in retail sales would be interpreted as positive for inflation. And this might give the BOJ some breathing room to hold rates. Broadly speaking, with better retail sales, we should get a boost in the JPY (the USDJPY would go down).
A negative read beyond the current consensus would not only imply lower inflation but would put additional pressure on the government regarding their projected sales tax hike in October.
The government insists it will happen regardless, but it’s hard to expect that it won’t have a negative impact on retail sales. And there ought to be some growth in the figure in the lead up as people buy ahead of increasing prices.
Where the Money is Coming From
Of course, the largest buyers are employees, and Japan has a uniquely low unemployment rate due to demographic factors. This means small moves or misses on expectations can have a larger impact on the market.
The day after tomorrow we have two key bits of data: employment and industrial production. Forecasts are for the latter to slip back into contraction. Industry, especially for export, is a key part of Japan’s economy, and it’s been struggling to say positive for well over a year now.
Expectations are for the unemployment rate in May to have improved slightly to 2.3% from 2.4% in the prior month. The unemployment rate in Japan has been pretty much stagnant since early last year, bouncing between 2.3% and 2.5%. Therefore, a move beyond those ranges would have an outsized impact on the currency.
The yen is still seen as a safe haven currency, despite the less than stellar domestic economic data. Due to several geopolitical issues bouncing around the news lately, the drive for safety might outweigh the negative impact from poor data, leading to the market fading upward moves in the EURJPY and USDJPY.
So far the yen has been getting stronger this quarter. And, without a resolution of the trade issue, that trend could be expected to continue even with mildly disappointing economic data.