Jump in BoJ’s JGB holdings in first 20 days of January confirmed at record as Kuroda ramped up defence of YCC
The BoJ’s publication today of its accounts for the first twenty days of January illustrated the marked step up in its bond buying required to support its YYC framework ahead of its first monetary policy meeting of the year. Indeed, the BoJ’s outstanding holdings of JGBs jumped ¥15.4trn in the first twenty days of the year (with roughly ¥14trn of that in the second half of that period), to ¥571.8trn. This is significantly larger than the previous record monthly increase in its JGB holdings of ¥11.3trn recorded last October. And so, even without the full-month data for January, the BoJ’s holdings were up over the past three months (¥24trn) by the most at any time during Kuroda’s tenure as Governor. Of course, the rise coincided with a substantial increase in use of the BoJ’s securities lending facility, which in the first twenty days of the month totalled a whopping ¥67trn, compared with ¥19trn in the equivalent period in December.

With more than 80% of CPI basket items with higher prices, Japan’s trimmed mean CPI rose to a series high 3.1%Y/Y
After Friday’s CPI inflation figures saw the BoJ’s forecast core measure rise to 4.0%Y/Y, a four-decade-high and double the inflation target, the Bank’s alternative gauges of underlying inflation, published today, similarly implied a broadening of price pressures. In particular, these showed that more than 80% of items in the CPI basket had higher prices than a year ago, the biggest share since the series began in 2001, while the share of those with declining prices slipped below 12% for the first time too. And so, the BoJ’s 15% trimmed mean CPI rose 0.2ppt to 3.1%Y/Y in December, also a series high and up from just 0.9%Y/Y a year earlier. Of course, this remains well below equivalent measures in the US (6.5%Y/Y) and euro area (7.5%Y/Y).

Flash Japanese PMIs report an easing in output prices, but modest improvement in output
Japan’s flash PMIs suggested that, despite slightly firmer input costs at the start of the year, the composite output price PMI fell 1.8pts to 53.5, the lowest reading in ten months, with the increase in prices charged easing in both services (down 0.9pt to 52.6) and manufacturing (down 3.7pts to 55.5) alike. This in part reflected ongoing subdued demand, with the composite new orders index still in contractionary territory (49.6) despite rising for the first month in three, as manufacturing orders continued to decline sharply (45.8). Admittedly, an easing in supply bottlenecks supported a modest improvement in manufacturing conditions, with the implied decline in the output component (47.1) the softest for three months. And a pickup in services activity (up 1.3pts to 52.4), helped push the headline composite PMI back into (moderately) expansionary territory in January (up 1.1pts to 50.8) for the first time since October.

German consumers more optimistic about the outlook but still extremely unwilling to make significant purchases
Yesterday’s flash Commission estimate of euro area consumer confidence in January reported a fourth successive improvement in sentiment to an eleven-month high. Likewise, this morning’s German GfK consumer confidence survey results reported greater optimism among households. However, while the headline index – reported as a forecast for February – rose for the fourth successive month to a six-month high of -33.9, the improvement was less than expected by the Bloomberg median expectation. The headline index thus also remains firmly in negative territory and a long way below the long-run average (4.1). And the detail of the survey was not consistent with a pickup in private consumption at the start of the year. Admittedly, it reported a significant improvement in expectations of the economic outlook and personal incomes, as well as a big drop in inflation expectations, as the start of 2023. But apart from last September’s reading, the GfK index of German consumer willingness to make purchases was the lowest since the Global Financial Crisis in 2008.

Euro area flash PMIs likely to suggest modest further stabilisation in economic conditions
The euro area data focus today will be the January flash PMIs, which should suggest further stabilisation in economic conditions at the start of the year. Having risen in December (49.3) for a second consecutive month, the composite output PMI is forecast to rise to 50 in January, admittedly a level that merely implies stagnation rather than a return to positive growth. With energy prices having fallen at the start of the year and supply constraints continuing to ease, the survey should also report a further slight moderation in input cost and output price pressures.

The French PMIs reported a modest improvement in the manufacturing survey, with the output component up 0.3pt to 48.0, an eight-month high, but nevertheless still implying declining activity. This contrasted with a modest deterioration in the services activity index, down 0.3pt to a near-two-year low of 49.5. As such, the composite PMI moved broadly sideways, down just 0.1pt to 49.0, similar to the findings of the INSEE survey. The headline INSEE business climate index dropped 1pt to 102, with a modest improvement in industry, services and retail trade but deterioration in wholesale trade and construction. Meanwhile, the French PMIs suggested that input cost inflation continued to move lower in January, although output price inflation rose to a 3-month high.

Record UK public borrowing figure in part reflects accounting change, and full-year figure should undershoot OBR forecast
UK public sector net public borrowing excluding public sector banks (PSNB ex) came in above expectations in December at £27.4bn, up from £10.7bn in the same month of 2021 and the highest for the month on the series. The record number for the month in part reflected the impact of high inflation on index-linked Gilt debt interest, government support for household energy bills, and the Truss/Kwarteng decision – subsequently retained by Sunak/Hunt – to reverse April’s National Insurance hike. However, it also reflected a one-off change to the accounting treatment of student loans. Nevertheless, in the first nine months of the fiscal year, public borrowing totalled £128.1bn, still some £2.7bn below the OBR’s most recent forecast produced in November, suggesting that full-year borrowing might significantly undershoot expectations. Indeed, compared to that forecast, a lower path of Bank Rate than had been assumed, as well as lower Gilt yields and lower natural gas prices, should provide the Chancellor with scope for modest fiscal loosening – perhaps enhanced support for household energy bills from April – when he presents his spring Budget on 15 March.

UK flash PMIs likely to be consistent with modest contraction at start of the year
Like in the euro area, today’s release of the January flash PMIs will be of interest. In December, the composite PMI rose 0.8pt to 49.0, reflecting tentative signs of recovery in the services sector at the end of the year. But the anticipated further improvement at the start of the New Year is likely to be more moderate, with the Bloomberg survey median forecast for the composite index up just 0.3pt to 49.3 and therefore still in contractionary territory. The latest CBI industrial trends survey will also provide an update on manufacturing conditions around the turn of the year.

US surveys to provide an update on business conditions at the start of the New Year
In the US, today will bring a range of business sentiment indicators for January, including the flash PMIs, the Philly Fed non-manufacturing index and the Richmond Fed manufacturing and non-manufacturing surveys.