JPY: Cash earnings disappoint, but details better – MUFG

FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, suggests that the November cash earnings data was released in Japan today and once again has disappointed with the annual rate falling from 0.7% in October to 0.0% in November – the consensus was for the annual rate to remain at 0.7%.

Key Quotes

“However, delving into the data reveals that the disappointment is entirely down to the volatile bonus component – bonuses fell 8.6%. Contracted pay on the other hand accelerated from 0.4% to 0.5% while regular pay jumped from 0.3% to 0.5%. That regular pay gain of 0.5% was in fact the strongest annual rate since February 2008. So certainly enough there we believe for the Japanese authorities to maintain the narrative that ‘Abenomics’ and a tightening labour market are slowly lifting wage pressures.

That is exactly what we got today with Governor Kuroda speaking in parliament and stressing once again the need to look beyond energy in order to gauge the underlying trend in inflation. PM Abe also spoke and stressed that Japan was making progress in ending deflation.

However, privately, the level of worry amongst the authorities must surely be on the rise. Firstly, the BOJ today released its quarterly survey on consumer sentiment and inflation outlook which was conducted between 6th November and 3rd December. The survey revealed that 77.6% of respondents believe inflation would rise over a one-year period, but this was down from 81.9% in September.

Over a 5-year period, 80.1% believed in higher inflation, down from 83.7%. Secondly, financial market developments point to a tightening in conditions which will equally worry the Japanese authorities. As we pointed out here on Wednesday, the BOJ JPY NEER has advanced sharply and is now 12% higher than the low set in June 2015. The index is also 2.7% above the level when the BOJ announced its second round of QE on 31st October 2014. The Topix Index is now nearly 15% below the peak set in August and has retraced over 50% of the equity market advance since the BOJ easing in October 2014.

The reassuring words on inflation trending higher by Governor Kuroda today may soon lose credibility and pressure will mount on the BOJ to do more. That may help arrest yen gains but it is very unlikely to result in anything like the scale of yen depreciation triggered by the two rounds of QE in April 2013 and October 2014.”

Derek Halpenny, European Head of GMR at MUFG, suggests that the November cash earnings data was released in Japan today and once again has disappointed with the annual rate falling from 0.7% in October to 0.0% in November – the consensus was for the annual rate to remain at 0.7%.

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