A Busy Day Ahead For The JPY

Japan seems poised to close out the week with a bunch of activity on the economic calendar which could cause some moves in JPY pairs. Later today, it’s Friday already in the Asian session. And traders looking to take positions ahead of the weekend. With that in mind, here’s what coming up and how it might affect the markets.

Schedule and Expectations

The calendar starts on Friday at 00:30 CET (or Thursday 19:30 EST) with the release of CPI data. The market focus will be on the core CPI number. This is one of two major events for the day.

Core CPI is what the BOJ tracks when making monetary policy decisions. It is presented in an annualized format. Expectations are for this figure is to slip two decimals to just 0.6% from the 0.8% prior. This would bring it back to levels from mid-2017, which is somewhat of a disappointment for regulators hoping that inflation was finally approaching target ranges in Japan.

Excluding food and energy, we can expect CPI to slip one decimal to also 0.3% annual, in comparison to the 0.4% prior.  Forecasts are for total CPI to tick up one decimal to 0.3% from the 0.2% registered previously. We’ve had three months of misses on core CPI, and analysts have cranked down the expectations.

The next major event is an hour later with the release of Nikkei Manufacturing PMI at 01:30 CET (which is 20:30 on Thursday EST). Projections are for a slight increase to 49.1 from the disappointingly lower 48.9 registered last month. While this would be an increase, it would still leave PMI in contraction territory, once again pulled down by the future prospects component.

The calendar wraps up for the day at 06:00 CET (or 01:00 EST) with coincident and leading indices. These, however, hardly ever move the markets.

The Markets

As mentioned last month, Japan has an inflation problem which is causing a severe headache for the BOJ. Despite the longest easing cycle in history, CPI is not reaching the bank’s target. A further drop this month would cement that view. This would then lead to the problem that if the economy in Japan were to slip below growth, the central bank is basically without ammunition to help kick-start the economy.

Even so, Japan is still seen as a safe haven. The currency is still appreciating as investors are expressing concern over global economic growth. And an appreciating currency makes domestic policy more difficult. It increases the cost for exporters while reducing the prices for importers. And Japan is largely dependent on imports for many of its inflation-driving consumer goods. Therefore, the weakening global environment will likely continue to contribute to low Japanese inflation.

A reflection of that is in the Manufacturing PMI data, which, should the expectations prove accurate, would register two consecutive months in contraction. A good deal of that is due to falling exports of the main technology products from Japan. It’s not so much to do with an issue with internal demand. However, slowing exports would imply a drop in demand for yen, and help keep the currency from appreciating.

Nevertheless, the general theme remains that the BOJ is still in a complicated position. And short-term price moves in the yen are likely to be driven by external factors. Hence, we could expect a more muted response if the figures miss or beat expectations. Although, a significant move higher in PMI might be seen as quite a relief for markets.