Wednesday is the release of Japanese consumer confidence, but traditional data might be completely ignored amidst the tariff-driven market turmoil. But the USDJPY has essentially cratered lately. Usually, Japanese officials would come out to comment on ‘excessive’ moves.
Given how much consternation the weak yen has caused the BOJ over the last couple of years, markets are likely eager to see what Governor Kazuo Ueda has to say. Over the last several months, the BOJ has been trying to cautiously raise rates to head off burgeoning inflation and shore up the currency. As a major importing nation, a weak currency affects Japan’s consumer prices more than in other countries.
Time to See the Reaction
Last month, the BOJ declined to raise rates when it met most recently. In his extensive post-rate decision press conference, Ueda said the main reason to hold off on tightening was uncertainty around tariffs. At the time it was reported that wages and prices were rising faster than would impede Japan from reaching its inflation target.
Ever since massive tariffs became an imminent reality, Ueda has warned that they would have a deleterious effect on Japan’s economy. If the economy slows, then the lower economic activity would presumably lead to lower inflation. In that case, then further rate hiking might not be necessary.
Weakness, But Whose?
Without an aggressive BOJ, then the yen would presumably be weaker. But that doesn’t mean the USDJPY could rocket higher, as the latest moves have largely been driven by weakness in the dollar. With the US economy expected to slow if not fall into recession, Japan’s position as a safe haven might reassert itself as the carry trade fades. This could give the yen a substantial boost and give the BOJ the opposite problem than it currently has.
After the last meeting, Ueda said the Bank was waiting to look at April data to get a better handle of the situation, and then decide what to do about rates. That would include a package of data for the first quarter. But the tariff situation might take precedence. Just last Friday, Ueda warned that downward pressure on the Japanese economy from the tariffs might lower prices. If he repeats that rhetoric, then the markets could start penciling less chances of a hike from the BOJ going forward.
What About the Hard Data?
The markets are still in the process of (in)digesting the effect of the tariffs, with the higher rates still not even haven gone into effect yet. Only the global 10% was being charged as of Friday, with the higher “reciprocal” rates scheduled to start being charged on Wednesday at midnight. It might take some time for the actual impact of the tariffs to be felt amidst consumers who might or might not face higher prices, or job losses.
Japan’s consumer confidence is expected to see a slight decline to 34.3 from 35.0 prior, with the survey being conducted long before the tariffs were applied. Machine tool orders are expected to see a slow down to 0.5% from 3.5% after reportedly businesses were front-loading purchases ahead of expected tariffs.