Yen Extends Slide as Consumers Reduce Spending

08/08/2023

2 minutes read

2023.08.08 11:00

MarketPulse

USD/JPY is down 1% this week
Japanese wage growth and personal spending decline

The Japanese yen is trading quietly on Tuesday. In the European session, is trading at 143.10, up 0.42%. The yen is down 1% so far this week.

Investors have been focused on the Bank of Japan, amid speculation that it could tighten policy due to rising inflation. How has the Japanese consumer managed with high inflation? Not all that well, according to spending and wage reports released on Tuesday.

Japan’s household spending, wage growth decelerate

Japanese household spending fell 4.2% y/y in June, following a 4.0% decline in May and worse than the consensus estimate of 4.1%. Household spending has declined in seven of the past eight months, as inflationary pressures have forced consumers to cut back on spending.

Japanese wage growth decelerated, as average cash earnings rose 2.3% y/y in June, down from 2.9% in May but better than the estimate of 1.6%. Wage growth continues to lag behind inflation, which came in at 3.3% in June. Taking inflation into account, real wages have declined for 15 straight months. High inflation remains a serious problem, but the Bank of Japan has insisted that it will not take any steps to normalize monetary policy until wage growth increases.

The BoJ released its Summary of Opinions on Monday. While members reiterated the need to maintain an ultra-accommodative policy, there was a discussion about rising inflation. Is the BoJ slowly coming around to acknowledging that inflation is not temporary? If so, it would mark a sea change in the BoJ’s thinking and perhaps lead to some tightening moves in the not-too-distant future, which would have major ramifications for the Japanese yen.

The Federal Reserve continues to sound hawkish. Fed member Bowman said on Friday that the Fed might have to deliver “additional rate increases” in order to bring inflation back down to 2%. Note that Bowman, a hawkish FOMC member used the plural “rate increases“. This would put her at odds with the money markets, which have priced in a pause in September and are looking ahead to rate cuts early next year. On Monday, FOMC member Williams said that he expects that the Fed will need to keep a restrictive stance “for some time”, with the length of time dependent on the data.

USD/JPY Weekly Chart