Japan: Strong economic releases - BBH

Analysts at BBH note that Japan reported stronger than expected overall household spending, industrial production, and inflation measures.  

Key Quotes

“The data did not do the yen much good, as there does not appear to be any policy implication, and the underlying driver (US yields) are steady to firmer.”  

“Japanese retail sales disappointed (1.7% year-over-year vs. Reuters survey median of 2.6% and a downward revision to the July series to 1.8% from 1.9%), but the overall household spending rose to 0.6% in August from -0.2% in July.   Industrial output, helped by robust exports and firm domestic demand, rose 2.1% month-over-month in August.  The Bloomberg consensus was for a 1.8% gain after a 0.8% decline in July.”  

“The most important data point was CPI.  The headline rate rose to 0.7% from 0.4%.  It is the highest in two years.  The core rate, which excludes fresh food, also rose to 0.7%.  The median expectation was for a rise to 0.5% from 0.4%.  Core inflation was flattered by a 5.2% rise in utilities (fuel, electricity, and water) and a 1.8% rise in medical prices.  However, the underlying signal is not quite as constructive.  Consider that excluding fresh food and fuel, consumer prices are up 0.2% year-over-year, up from 0.1% in July.  Separately, note that the Tankan Survey will be released first thing Monday in Tokyo and a small increase in sentiment is expected.”  

“The dollar was pushed back from the test on JPY113, but a near-term shelf has been created near JPY112.20.  If US yields remain firm, the dollar can overcome JPY113 to rise toward JPY114.00-JPY114.50, which is where the greenback peaked in May and July.”