To ease or not to ease? That is the question that appears to be bothering BOJ officials at the moment. What do the latest economic numbers from Japan say and what could this mean for the yen? Here are some reasons why the Japanese central bank might ease again.
1. Weak Japanese economic data
Fresh off the press today is Japan’s economic reports for the month of July, three months after the implementation of the sales tax hike. As Pip Diddy discussed in his Asian Session Recap, most of the figures fell short of expectations once more, disappointing those who believed that the Japanese economy could stay resilient and quickly recover from the negative effects of the tax increase.
Household spending plummeted by an annualized 5.9% during the month, much worse than the estimated 2.7% decline and nearly twice as much as the previous 3.0% drop. Industrial production chalked up a mere 0.2% uptick, far below the projected 1.2% rebound, while the previous month’s reading was revised to show a larger decline of 3.4%. The jobless rate climbed from 3.7% to 3.8% instead of holding steady as expected.
2. Projected downturn in exports and spending
As though the recent reports weren’t dismal enough, economic analysts and even researchers in the central bank have been predicting further weakness, particularly in exports and consumer spending. Earlier in the month, the BOJ downgraded its forecasts for exports, citing weaker external demand amidst geopolitical tensions.
In addition, BOJ staff members warned that structural weakness in exports and consumption could weigh on future growth, as the Japanese economy might lag behind even if its major trade partners recover. Government officials also pointed out that the prolonged slowdown in consumption following the tax hike has been concerning, as it could be a sign that a deeper slowdown is in the cards.
3. Kuroda’s cautious remarks
Perhaps one of the clearest hints that the BOJ could be opening up to the idea of additional stimulus is Kuroda’s cautious remarks during the recent Jackson Hole Summit. As it turns out, he admitted that more easing could be warranted if inflationary pressures weaken – a stark difference from his previous stubborn stance!
“We will continue our current monetary policy, but if there is anything which could derail our course toward 2% inflation target we would not hesitate to change or adjust our monetary policy,” Kuroda said. However, he still reiterated that consumption remains robust and that the employment situation is strong. Say what?!
Whether or not the latest set of Japanese data would be enough to change Kuroda’s assessment of economic performance remains to be seen, as the BOJ is gearing up to make its monetary policy statement next week. Do you think they will announce another round of stimulus then?