The BOJ today left policy unchanged, and inflation in August also didn't move much. The first cut of part-time wages for August was sluggish. That's important when the flash PMI for September suggests the services recovery is now fading.
Today's BSI survey suggests growth momentum remains strong. It is also indicating the labour market is about to tighten quite a lot more. For us (though less so for the BOJ) that has been the missing ingredient in Japan's recovery, and so it would be important if that is now changing.
The post-covid recovery is still early, with domestic demand still weak. Full-time wage growth isn't changing much, but in July, part-time wages grew 4% YoY. That isn't enough when commodity price inflation is picking up, and means renewed pressure for JPY intervention.
Japan's labour market recovery remains sluggish. That doesn't seem to worry the BOJ, and consumer confidence is suggesting some improvement in nominal earnings. We'd have more confidence that this could continue if published nominal wage growth was also picking up.
Headline inflation in Tokyo did fall in August, suggesting feed through from the sharp fall in goods PPI of recent months. But core inflation was stable at around 2.5%, and services PPI in July was also firm.
The PMIs for August were solid, though concern was expressed about a renewed rise in energy prices. That could impact consumer confidence, as even part-time wage growth remains below inflation. However, the BOJ continues to think the labour market is tightening.
While headline inflation and exports are falling in Korea and Taiwan, CPI and external shipments are holding up in Japan. Weaker import prices should still mean some downwards pressure on CPI through to year-end, but there will be an offset if the labour market tightens and rentals rise.
NGDP growth in Q2 surged, but RGDP growth was less impressive, and driven all by exports. Last week's EW survey suggests the recovery still has room to run. Missing so far is private consumption, which needs inflation to fall and wage growth to rise. There's more sign of the former than the latter.
Consumer confidence in Japan is recovering, even though inflation expectations remain high. That hints at a bullish, positive reflation dynamic. That would seem more convincing if the labour market was running hot, but June data show labour demand and supply dynamics remaining merely warm.