USD/JPY steady after weak Japan household spending data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jan 7, 2022
  • The USD/JPY is hovering near its 2017 high after the Tokyo inflation data.
  • Consumer prices in Tokyo rose to 0.8%, which is lower than the global average.
  • Japan’s household spending declined in November.

The USD/JPY price is hovering near its highest level since January 2017 after the latest Tokyo inflation and Japan household spending data. It is trading at 115.88, which is about 14% above the lowest level in 2020.

Japan household spending

Like in most countries, consumer spending is the biggest part of Japan’s economy. According to Japan’s statistics agency, household spending declined by 1.2% in November after rising by 3.4% in October. That decline was worse than the median estimate of 1.2%. 

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On a year-on-year basis, the spending declined by 1.3%, which was lower than the expected increase of 1.6%. The weak performance was mostly because of worries of the Omicron variant.

Additional data showed that Japan’s inflation is still struggling. According to the statistics agency, Japan’s headline consumer price index (CPI) increased to just 0.8%. 

That happened simply because businesses in Japan are not known for hiking prices. As a result, it has successfully defied the Philips Curve since the country also has one of the lowest unemployment rates in the world.

The USD/JPY also reacted to the latest overtime pay data from Japan. The pay increased from 2.3% in October to 2.70% in November. This is an important number since it shows how busy companies are.

US jobs data ahead

The next key catalyst for the USD/JPY pair will be the latest US jobs numbers that will come out on Friday evening. 

The data is expected to show that the country added more than 400k jobs in December while the unemployment rate declined to 4.1%. Wages are also expected to have risen by 4.2%.

Strong US jobs numbers will give the Fed an urgency to increase interest rates at a quicker rate since inflation has already jumped to the highest level in decades. Therefore, the USD/JPY pair has rallied recently because investors expect that a divergence between the Federal Reserve and the Bank of Japan (BOJ) will remain. While the Fed is expected to turn hawkish, the BOJ is expected to maintain its interest rates low for a while.

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