Japan – what can the BOJ say now?
Inflation was softer in September, but the economy still looks on track, with exports and household income up, and early signs of another strong shunto round. At the same time, the JPY is weakening again. This backdrop means the BOJ faces a very tough communication challenge at its October meeting.
Japan – incomes up, but still not enough
There was a decent bounce in per capita household incomes through Q2. But the rise in consumption was smaller, with better incomes fuelling stronger savings rather than much more spending. The Q2 BOJ consumer survey shows the big worry at the household level remains the high level of prices.
Japan – EW and wages remain firm
Data continue to show little change in the constructive economic assessment that the BOJ was talking about in 1H24. The Economy Watchers survey for September ticked down, but is well above the LT average, and the outlook score is higher still. Growth in underlying wages remains firm.
Japan – Q3 Tankan details
The detailed Q3 BOJ Tankan shows both labour market tightness and corporate output price expectations remaining as elevated as any time since the 1980s. Clearly, the economy hasn't been derailed by the market volatility of early August, and without a new shock, the BOJ seems likely to hike again.
Japan – Q3 Tankan on track
Ueda's caution and now politics are the big near-term policy dynamics. Politics might affect monetary policy longer-term, if Ishiba's as PM is as hawkish as his reputation. But the cycle hasn't been derailed yet, with the Q3 Tankan showing sentiment, the labour market and pricing all remaining firm.
Japan – cold feet
The BOJ's stance now has two clear dimensions. One, as before, is its constructive view of the domestic economy. But now there's also an explicit concern about US growth. As long as one offsets the other, the BOJ has time. However, if the US soft lands, then the BOJ will have ground to make up.
Japan – services inflation back to 2%
So, no surprise from the BOJ today. But the bank's statement remained constructive, revising up consumption. Today's separate services inflation data for August was also firm. Import prices have receded on the rising JPY, but we'd think the BOJ should be hiking again with a strong Q3 Tankan.
Japan – still on track
It is clear that the market moves that accompanied the BOJ's July policy changes are impacting prices. But it isn't obvious that they have derailed the underlying path for the economy. It seems to us the door remains open for an October hike, with the obvious risk being events in the US.
Japan – activity still solid
The Economy Watchers survey improved in August. That matters, as if the market vol around the BOJ meeting in July had caused damage to the cycle, it should be showing up by now. The rise in the household score is particularly important, given the previous weakness of consumption.