Japan – consumption ticks up
The upside risk for Japan and the BOJ is a fall in headline wages and a recovery in consumption that lifts aggregate demand. There are some signs of that process falling into place, but they remain tentative. The impact on the BOJ will be offset if underlying inflation drops too far.
Region – the structural rise in wages
Not just in Japan but Taiwan too, there are signs of a structural break from persistently low wage inflation. The implication is that the gap between nominal monetary settings between both and the US is likely to be narrower in the future than it has been in the past.
Japan – long- and short-term corporate sentiment
Two recent surveys from the Cabinet Office highlight Japan's labour market tightness. In its annual survey released at the end of February, hiring intentions are the highest since the 1990s. And today's quarterly survey shows worker shortages rose again from Q4.
Japan – strong sentiment and wages, not consumption
Even more than the PMI, the EW survey points to Japan's cycle having decent momentum. There is upside risk around that, because consumption has yet to recover, while it looks like the shunto wage round will be strong. That is the backdrop for increasingly confident commentary from the BOJ.
Japan – inflation stable, cycle firm
Headline inflation in Tokyo in February rose from 1.8% YoY to 2.6%. So inflation isn't disappearing. But underlying measures don't suggest that inflation really is accelerating either, with core settling around 2% annualised. At the same time, the PMI shows services momentum remaining firm.
Japan – consumer confidence up again
Consumer confidence rose again in February, despite inflation expectations in the survey staying high. That hints at rising real wages. This makes a recovery in domestic consumption more likely, and if that occurs, the economy this year will be stronger this year than the BOJ expects.