Upcoming Japan Retail Sales And More

JPY traders ought to keep an eye on the economic calendar during Friday’s Asian session since we have a bunch of potentially market-moving data on tap. Chief among them is the retail sales data.

With concerns over weakness in the world’s third-largest economy, we could see some added volatility in JPY pairs. Here are some things to consider when setting up your trades later.

Schedule and Expectations

We start with a host of second-tier data on Friday at 00:30 CET (or Thursday, 19:30 EST.) This will be employment data and Tokyo CPI. The latter we can safely ignore since it rarely ever moves the market.

Employment

Japan’s employment, however, is uncharacteristically low due to cultural and demographic factors.  So, the usual consideration for structural employment doesn’t apply. Expectations are for the rate to drop to just 2.2% in line with the long-standing trend.

Last month, there was an expectation for a drop in the unemployment rate. However, the data surprised by coming in higher, which can be considered negative for the JPY. If the projections are right this time around, the unemployment level could fall to the level it was in June of last year. A move higher, on the other hand, would put it far away from expectations and we ought to interpret it as a negative sign for the JPY. We can expect the jobs to applicants ratio to remain broadly flat, just ticking down a basis point to 1.62 from 1.63.

Retail Sales

Next, we have the meat and potatoes of the session at 00:50 CET (still Thursday at 19:50 EST). Here we can expect the release of the retail sales data and industrial production. These are definitely the more interesting data for the markets and are likely to set the tone for JPY pairs going into the weekend.

What interests the market is the month over month figure, which we can expect to barely climb back to positive territory at 0.3%. This is an improvement over the -2.3% of the prior month, which was the worst performance since late 2015.

Monthly retail sales tend to bounce up and down between positive and negative, but keep from going beyond the 2.0 mark in either direction. The expectation would bring the data series back to its generalized average, And, traditionally, a negative result is followed by a positive one. So if that pattern doesn’t manifest, it could make some traders quite nervous. We can expect annualized retail sales to do better, increasing 1.3% compared to 0.6% in the prior month.

At the same time, we also have industrial production. Expectations are that it will moderate its decline to just 0.3% from the 3.4% registered last month.  A significant portion of Japan’s industrial production is for export. And with the trade situation under pressure, continued poor numbers from this indicator are not surprising.

Japan’s Sales Problem

Policymakers in Japan have been frustrated with the economy’s performance. They have, in fact,  been taking measures to try to address the situation with apparently less than satisfactory results. Recently we had the release of the opinions from the March BOJ meeting. This showed that they were debating stepping up stimulus to boost growth. The architect of “Abenomics,” Yamamoto,  suggested last Tuesday that the bank was likely out of options to deal with the economic situation.

Weak retail sales get in the way of the government’s plan to raise sales taxes later in the year, despite official assurances that it will go in effect. The government has implemented a points system with cashless payment systems to offset the impact of the tax hike. However, the high commissions of card transactions have led to many smaller businesses not wanting to opt into the system. And small businesses are likely to be the most affected by a sales tax hike since they don’t have the market-making power of large retailers.

While weakness in retail sales wouldn’t be too much of a surprise, it would contribute to a darkening mood regarding Japan’s export-driven economy. Arguably, poor performance is probably priced into the market, giving a higher chance of a relief rally if the data surprises to the upside.