–Bank of Japan to Stand Pat amid Political Storm Following PM Ishiba’s Resignation, Board Monitors Trump Tariff Impact on Q3 Data
–August Data to Highlight Tariff Impact: Japan Carmakers’ Discount Strategy Keeps Their US Market Share but Depresses Export Values
–Core CPI to Ease Below 3% on Summer Fuel Subsidies, Yen’s Relative Strength Vs. Slump in Early 2024
By Max Sato
(MaceNews) – Here are the key Japanese political and economic events for the coming week.
Both the ruling and opposition camps are scrambling to pick candidates for general elections that are widely expected in October after the ruling conservative Liberal Democratic Party elects the party leader who is set to replace Prime Minister Shigeru Ishiba.
The LDP is scheduled to officially announce the start of the party leader race on Monday, Sept. 22 for a vote on Saturday, Oct. 4. Ishiba stepped down last week, taking the blame for the crushing defeats, first in the upper house of parliament last year, then in the lower house in July.
Voters are demanding a higher take home pay amid sticky goods inflation while services costs – basically wage – are trailing far behind. Real wage remain depressed.
– Wednesday, Sept. 17
0850 JST (2350 GMT/1950 EDT Tuesday, Sept. 16) The Ministry of Finance releases August trade
Mace News median: exports -2.9% y/y (range: -5.3% to -1.0%) vs. July -2.6%; imports -5.5% y/y (range: -6.5% to -4.1%) vs. July -7.4%; trade deficit ¥518.60 billion (range: a deficit of ¥648.40 billion to a deficit of ¥247.60 billion) vs. a revised ¥118.44 billion deficit; ¥711.44 billion deficit in August 2024
Japanese export values are forecast to post their fourth straight year-on-year drop in August, down 2.9%, after falling 2.6% in July, hit by the protectionist U.S. trade policy focused on the auto and metals industries as well as lingering sluggish demand from China.
Trump’s tariffs have prompted Japanese carmakers to slash the prices for U.S. customers, basically covering high import costs and thus protecting their market share in the world’s biggest economy (their strategy has worked so far). This has trimmed overall Japanese export values while the volumes of exports to the world remain above year-earlier levels
The decline in August export values is expected to be led by automobiles, iron and steel and auto parts in that order as seen in recent months, judging from the official data for the first 20 days of August. Exports of ships, a volatile factor, were up in that period.
Import values are expected to dip 5.5% for a second straight drop following a 0.7% slip in July. The decrease is seen driven by continued declines in prices for crude oil and coal as well as in payback for recent higher drug purchases. Imports of smartphones remain solid and those of computers are also strong before Microsoft stops supporting its operating system Windows 10.
As a result, the trade balance is forecast to post a deficit of ¥518.60 billion following a revised ¥118.44 deficit in July. It would compare with a ¥711.44 billion deficit in August 2024.
– Thursday, Sept. 18
0850 JST (2350 GMT/1950 EDT Wednesday, Sept. 17) The Cabinet Office releases July machinery orders.
Mace News median: core orders -3.5% m/m (range: -5.5% to -0.5%) vs. June +3.0%; +5.2% y/y (range: -1.5% to +7.4%) vs. June +7.6%
Japanese core machinery orders, the key leading indicator of business investment in equipment and software, are forecast to post their first drop in two months, down 3.5% on the month, following a stronger-than-expected 3.0% increase in June. Demand for computers remains strong in a move to digitize operations amid widespread labor shortages.
Last month, the Cabinet Office forecast that core orders would slip back 4.0% on quarter in the third quarter. It maintained its assessment for the seventh consecutive month, saying, “Machinery orders are showing signs of a pickup.”
From a year earlier, core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, are expected to mark their 10th consecutive gain, up 3.0%, following a solid 7.6% rise the previous month.
– Friday, SEPT. 19
0830 JST (2330 GMT/1930 EDT Thursday, Aug. 21) The Ministry of Internal Affairs and Communications releases August CPI
Mace News median: total CPI +2.8% y/y (range: +2.7% to +2.9%) vs. July +3.1%; core CPI (ex-fresh food) +2.7% y/y (range: +2.7% to +2.8%) vs. July +3.1%; core-core CPI (ex-fresh food, energy) +3.3% y/y (range +3.2% to +3.4%) vs. July +3.4%
Consumer inflation in Japan is expected to continue slowing in August to around 3% in two key measures, thanks to retail gasoline subsidies which has offset the continued uptick in processed food costs. The yen’s rise from last year’s slump has also lowered import costs, triggering a pullback in spending by visitors from overseas who lost their currencies’ competitive edge over the yen.
The impact of slowing overall energy price gains (gasoline has been down) has been mitigated by elevated processed food prices despite gradually easing domestic rice supply shortages (regular rice still costs nearly double the price seen a year earlier) as well as higher mobile phone charges.
The core reading (excluding fresh food) is forecast to post a 2.7% rise on year in August after its annual rate decelerated to 3.1% in July from 3.3% in June. The year-on-year rise in the total CPI is also seen at 2.8%, easing further from 3.1%. The underlying inflation measured by the core-core CPI (excluding fresh food and energy) is estimated at 3.3% vs. 3.4% in the previous two months.
The current consumer price rises are not fully backed by domestic demand but largely pushed up by higher import costs. As CPI data have shown in recent months, wage-heavy services price hikes still lag far behind goods price gains.
This means that it is not accompanied by sustained and substantial wage growth and that underlying inflation is still below the Bank of Japan’s 2% target. Yet the bank is still in the gradual process of normalizing its accommodative policy stance that had kept short-term interest rates in a range of zero to slightly negative until March 2024, when it conducted its first rate hike in 17 years and ended the seven-year-old yield curve control framework.
c.1130 JST (0230 GMT the same day/2230 EDT Thursday, Sept. 18) The Bank of Japan releases the outcome of its two-day policy board meeting in monetary policy statement.
1530 JST (0630 GMT/0230 EDT) BOJ Governor Kazuo Ueda holds an hour-long news conference to discuss the board’s decision.
The previous meeting on July 30-31 ended at 1150 JST (2250 EDT/1950 PDT) and the BOJ released the statement and Outlook Report at 1157 JST (2257 EDT/1957 PDT).
At its Sept. 18-19 meeting, the Bank of Japan’s nine-member board is expected to decide to maintain the target for the overnight interest rate at 0.5% for the fifth straight meeting after hiking it by 25 basis points (0.25 percentage point) in January amid uncertainty over trade rows.
A majority, if not unanimous, vote is widely anticipated in light of Prime Minister Ishiba’s decision announced on Sept. 7 to step down.
The bank has repeated in its recent policy statements that it will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.