The BoJ signals a pickup in Japanese consumption

Chris Scicluna
Emily Nicol

BoJ consumption index suggests decent Japanese spending growth in November
Contrasting with last week’s softer Japanese household spending report, today’s Bank of Japan’s consumption activity index suggested another month of solid growth in November. In particular, total expenditure rose for the third consecutive month, by 2.4%M/M, to leave it trending in the first two months of Q4 almost 5% higher than the Q3 average. While the pickup was broad-based, it was again led by services (3.4%M/M), with spending on such activity on average in October and November more than 7% higher than in Q3. But while spending on durable goods also rose for the second successive month (2.2%M/M), it was still below the Q3 average. And spending on both still remains considerably lower than the pre-pandemic level.

BoJ consumer survey reports greater optimism amid higher inflation expectations
The BoJ’s latest quarterly consumer opinion survey also published today suggested a marked improvement in the current economic situation with the relevant index the highest since the onset of the pandemic. Moreover, consumers were notably more upbeat about the year ahead, with the respective diffusion index recording the first positive reading since Q213. But perhaps most noteworthy in today’s survey was the inflation outlook. Indeed, the share of households assessing prices to have risen over the past year rose to more than three-quarters, from a little more than 60% in September and 55% in June. And almost 80% of respondents expected prices to rise further over the coming year. Indeed, the survey suggested that the median forecast for the headline CPI rate in twelve months’ time jumped to 5.0%Y/Y, compared with 3%Y/Y in September. While that’s an unrealistic expectation given that Japan’s headline CPI rate stood at just 0.6%Y/Y in November, the BoJ might well take some comfort in this rise in inflation expectations, even if only one-fifth of the respondents indicated that they had heard of the BoJ’s price stability target.

UK spending on the high street appears to hold up relatively well at the end of the year
Despite the surge in coronavirus cases and new pandemic guidance in England from the middle of the month, today’s BRC retail sales monitor suggested that UK retail sales held up relatively well at the end of last year, with total sales up 2.1%Y/Y in December (up 0.6%Y/Y on a like-for-like basis). Admittedly, this was notably softer than the 5%Y/Y (1.8%Y/Y on a like-for-like basis) increase seen in November when consumers appeared to bring forward much of their Christmas shopping to take advantage of Black Friday deals and try to avoid any potential shortages over the festive period. As such, while online sales likely rose in December, we continue to expect the official adjusted retail sales numbers for that month (data due 21 January) to post a moderate decline following monthly growth of almost 1½%M/M in November.

Today’s Barclaycard spending report was broadly encouraging nevertheless, with spending on credit cards up 12.2% in the period 20 November to 24 December compared with the same period in 2019 ahead of the pandemic. Spending on essentials reportedly rose 13.7% with spending on non-essentials up 11.5% on the same basis. But certain consumer-facing services were inevitably hit, with particular weakness in spending at restaurants (-14.4%) and on travel (-33.5%).

Spanish IP jumps to highest level since August 2019
Contrasting with the weakness in Germany and France reported last week, Spain’s industrial production data in November massively exceeded expectations. Total output jumped 4.5%M/M, the most since the initial rebound at the onset of the pandemic, to the highest level since August 2019. And the strength was broad based, with the strongest growth in production of pharmaceuticals (a huge 21.6%M/M), machinery and equipment (6.3%M/M) and electronic items (5.9%M/M). Production of autos remained subdued (0.5%M/M) to be still 24% lower than the pre-pandemic level.

Looking ahead, Italian retail sales data for November are due this morning, as is the latest BoF business sentiment survey, which will provide an update on the Bank’s estimate for French GDP growth in Q4 (previous estimate around 0.75%Q/Q). Aggregate euro area IP data for November are due tomorrow.

All eyes on Jay Powell hearing in Congress
The main focus in the major economies today will be Jay Powell’s appearance before the Senate Banking Committee at his nomination hearing for his proposed second term as Fed Chair. He seems bound to be re-appointed but will nevertheless be pressed for his views and his comments will be watched closely by the market for any additional hints on the future path of rates and likely timing and extent of future quantitative tightening after last week’s hawkish FOMC minutes. In terms of US data, the NFIB small business optimism survey for December is scheduled for release this morning.

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