USD/JPY gained ground briefly earlier in the Thursday session, but has since retracted. In the North American session, the pair is trading at 112.40. On the release front, Japanese Retail Sales rose 2.0%, well short of the estimate of 2.6%. Later in the day, Japan releases Household Spending and Tokyo Core CPI. On Friday, the US releases UoM Consumer Sentiment.
Japanese retail sales slowed to just 2.0% in May, compared to 3.2% a month earlier. The weak figure points to a Japanese consumer who is hesitant to open the purse strings. Wages have been stagnant, which has hampered consume spending, a key driver of economic growth. Inflation is stuck below 1 percent, well below the BoJ’s target of 2 percent. Japan will release key consumer data later on Thursday, but the markets are not holding their breath for positive readings. Household Spending is expected to decline 0.7%, while Tokyo Core CPI, the primary gauge of consumer spending, is forecast to post a weak gain of 0.2%. At the same time, Japanese policymakers can point to five straight quarters of expansion, as the stronger global demand has boosted Japan’s manufacturing and export sectors.
If recent communications from the BoJ are any indication, the bank isn’t likely to tighten monetary policy anytime soon. The bank has been very consistent in its message that the ultra-loose accommodative policy will stay in place until inflation levels rise closer to the BoJ’s target of 2.0%. Despite years of stimulus from the BoJ, the inflation target remains elusive. However, rather than lower the target, the rigid bank has insisted that it’s only a matter of time before the improved Japanese economy triggers higher inflation. At the same time, the bank is mindful that there is growing speculation that better economic conditions could translate into the bank winding up its stimulus package. In the bank’s Summary of Opinion, released earlier this week, board members acknowledged that it was important for the BoJ to clearly communicate to the markets that the bank has no plans withdraw monetary stimulus anytime soon. There may be some tweaks and nuances along the way, but that will likely be the extent of any moves from the BoJ, barring unexpected changes in inflation levels.
