Japan is giving us an early start to next week’s economic calendar. A host of data relating to trade and industry will be coming out during the Asian session.
With Japan being so dependent on trade and their annualized GDP barely breaking even, this is some important data to help us see if the economy will turn around in the near future. There’s relative optimism coming from the US-China talks over the last month. So, we might get a better result. Here are some things to consider ahead of these events.
Schedule and Expectations
We start with the more important of the data releases which is trade. This is scheduled at 00:50 CET on Monday (which would be 19:50 EST on Sunday). It includes imports, exports, the balance, and adjusted balance.
Markets focus on the adjusted trade balance, which we can expect to register a deficit of ¥254B. This would be an improvement over the deficit printed last month of ¥370B. Japan’s adjusted trade deficit has been negative since August of last year. On the other hand, forecasts indicate that the unadjusted trade deficit will decrease to just ¥629B from the ¥1.4T registered the prior month.
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Then we jump to 05:30 CET (which is 00:30 EST) when we get the change in industrial production. We should note that capacity utilization also comes out, but virtually never moves the market. Industrial production took a bit of a stumble last month, falling 3.7% against a positive expectation. Current forecasts are for it to fall another 3.7%.
The Trade Situation
Last month was the fourth consecutive un-adjusted trade deficit and the largest since March 2014. With an economy so dependent on exports, that is an unfortunate sign. This is especially true considering that the largest component driving the deficit was a drop in exports. Imports also dropped, just not as much as exports.
We can expect a similar situation this time around, with exports projected to drop by 7.7% over the prior month. Meanwhile, expectations are also for imports to drop by just -0.9%. Although this would help close the gap a bit, it’s still showing weakness in Japanese export markets, chief among them being China.
On the other hand, last time around, the current account actually widened a bit. This came as a response to increased capital flows to Japan. Terms of trade also have been rising over the last months. That might be an indicator that should the trade dispute between the US and China resolve, Japan’s trade balance would quickly normalize.
The surprise drop in industrial production last month was driven primarily by motor vehicles, a primary export for Japan. Other industrial production sectors mainly affected are also major exports, such as electrical machinery and electronics.
So, again, momentary trade conditions continue to drive the data. And, that uncertainty would mostly continue to support demand for the yen as a safe-haven vehicle, despite disappointing trade and industrial data.
Recently the press has reported that the BOJ is considering cutting its assessment of trade and industrial performance. There were also reports of the Fin Min addressing concerns expressed in Parliament regarding the economy. Rather than say he expected things to improve, Aso’s intimated that he did not expect things to get worse domestically.