Japanese household spending figures signaled cooling private consumption, lifting USD/JPY early in the Asian session on Friday, November 7. Household spending has been a topic of discussion, given recent USD/JPY strength, triggering yen intervention warnings amid concerns about import prices.
A weaker yen could lift import prices, affecting inflation and consumer spending. Weaker spending could affect the economy, given that private consumption accounts for roughly 55% of Japan’s GDP.
Today’s data followed Japanese wage growth data for September, which signaled rising full-time wage growth, but softer part-time wages. Wage growth and consumer spending are two key considerations for the Bank of Japan’s monetary policy outlook.
Household Spending Spotlights the Bank of Japan
Japanese household spending increased 1.8% year-over-year in September, down from 2.3% in August. Weaker consumer spending could cool demand-driven inflation, supporting a less hawkish BoJ rate path. Fading bets on a December BoJ rate hike could ease demand for the yen.
Notably, the mixed wage data and softer rise in household spending tempered bets on a BoJ rate hike. USD/JPY rose from 152.865 to 152.973 after the release of the data, reflecting a less hawkish BoJ policy stance.
Why do Traders Need to Track Wage Growth and Household Spending?
Average cash earnings (nominal pay) rose 1.9% YoY in September, up from 1.3% in August, while real wages fell 1.4%.
Meanwhile, Japan’s so-called ‘core-core’ inflation rate eased from 3.3% in August to 3.0% in September, meaning wages are trailing price increases, affecting household purchasing power. Purchasing power could erode further if markets temper BoJ rate hike bets and the yen weakens, further reducing household purchasing power.
Weakening purchasing power could ease inflationary pressures, affect the economy, and weigh on the yen, a vicious cycle for households, the BoJ, and the Japanese government, which is eyeing yen movements.
Japanese Prime Minister Sanae Takaichi recently commented on wages and inflation, stating that price stability, coupled with wage gains, had yet to be achieved.
While recent Japanese data could support a more dovish BoJ rate path, intervention threats would cap USD/JPY gains.
