Week in review
- U.S. February retail sales up 0.6% m/m
- U.S. February headline inflation rose 0.4% m/m
- U.S. February PPI inflation up 0.56% m/m
Week ahead
- U.S. Fed policy announcement
- Bank of Japan policy announcement
- Japan core CPI
Thought of the week
Last week, investors closely watched Japan’s spring wage negotiations, which the Bank of Japan (BoJ) has repeatedly telegraphed that it is key to determining whether a policy pivot is necessary. The first round results showed wage hikes of over 5%, significantly above last year’s 3.8%. If this is realized in the final round, it will be the highest since 1991, but two factors remain key – how much this sets a tone for small and medium firms (employing 70% the Japanese working population), and the effectiveness of the passthrough into higher consumption and more sustainable services inflation. We continue to expect the BoJ to raise rates in April, but the recent wage talks and upward revision to 4Q23 GDP are increasing the likelihood of it happening this week. A BoJ pivot will likely also entail a pause in ETF and REIT purchases, which has indeed slowed despite the recent pullback in Japanese equities. However, BoJ’s purchases of JGBs might take time to end in order to maintain yield stability. In terms of the Yen, we don’t see a meaningful appreciation to come as the BoJ pivot is likely gradual and accommodative, and we also see little risks to unexpected BoJ hawkishness or Fed dovishness. The impact of a modest Yen appreciation on Japanese equities should also be cushioned by resilient corporate profitability, the revitalization of the corporate sector from reflation, as well as the weakening correlation between the currency and equities.
Japan core inflation and wage growth
Year-over-year change
Market data