Japan’s household spending rose by 1.3% in June compared to last year, but this was lower than the expected 2.6%. Monthly spending dropped by 5.2%, worse than the anticipated 3.0% decrease, following a prior gain of 4.6%. The ‘Summary of Opinions’ from the Bank of Japan’s meeting on July 30-31 is coming out later today. The Bank is keeping an eye on spending and wage trends to decide on interest rate increases. Recent data shows that inflation-adjusted wages in Japan fell for the sixth month in a row in June, as price increases outpaced wage growth.

Impact Of Revision On Growth Forecast

On Thursday, Japan’s government updated its growth forecast for this fiscal year. This change reflects the impact of U.S. tariffs on capital spending and persistent inflation affecting household consumption. There are concerns about a possible slowdown in Japan’s recovery, which relies heavily on consumer spending. The household spending figures from June were significantly below expectations, indicating that Japanese consumers are struggling more than anticipated. With wages failing to keep up with inflation for the sixth consecutive month, the Bank of Japan (BoJ) has little reason to aggressively raise interest rates. This supports our belief that the BoJ will remain cautious through the end of the third quarter. This weak domestic situation was backed up by the Tokyo Core CPI data for July, which came in at 2.1%, slightly below expectations. The BoJ’s recent “Summary of Opinions” also reflected members’ worries about vulnerable consumption. This series of disappointing data suggests the central bank is likely to delay its next rate increase.

Implications For Forex And Equity Markets

In the weeks ahead, we anticipate continued weakness in the Japanese Yen. A strategy of buying call options on USD/JPY, aiming for a move towards the 161.50 level, looks appealing. Since the spending data was released in early July, we have seen the currency pair test the 160.00 psychological level, indicating consistent demand for the dollar against the yen. A dovish stance from the BoJ is a positive sign for Japanese stocks, since a weaker yen helps the export sector. The Nikkei 225 has already increased by over 2% since the start of August. We believe buying Nikkei 225 futures is a good way to tap into this trend, which is likely to persist as long as the BoJ remains inactive. The significant 5.2% drop in monthly spending also suggests underlying economic volatility that may not be fully reflected in the market. This indicates that using options strategies that benefit from price swings, like straddles on the yen, could be wise ahead of next week’s preliminary Q2 GDP report. A surprise in this data could lead to a major market movement. This scenario reminds us of the 2023-2024 period when the BoJ kept its very loose policy long after other central banks tightened. Betting on a hawkish shift from the BoJ was a losing proposition for a long time. Current data indicates that being patient is still the best approach regarding Japanese monetary policy. Create your live VT Markets account and start trading now.

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