Japanese Household Spending Rises, Business Sentiment Dismal

Household Spending increased on an annual basis but fell on a monthly basis. Japanese business sentiment also slumped due to rising commodity prices.

On Friday (11/March), Japan's Cabinet Office released data on Household Spending which increased 6.9 percent on an annual basis (Year-over-Year) in January. This figure managed to exceed economists' expectations for a 3.6 percent increase, and rose from a 0.2 percent decline in the previous period. But on a monthly basis, the data that measures Japanese household spending fell 1.2 percent.

"While the Covid-19 infection rate continues to decline, household consumption does not appear to have fully recovered. This raises the possibility that the Japanese economy will contract in the first quarter of 2022," said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Meanwhile, Japanese business sentiment slumped in the first quarter of 2022. The decline occurred in sectors directly related to rising raw material and energy prices, such as the food and transportation industries. The index slumped from 9.6 percent to 7.5 percent, its lowest in three quarters.

Japan's dependence on imports of raw materials makes its economy very vulnerable to commodity price fluctuations in international markets. This condition was exacerbated by Russia's invasion of Ukraine which made crude oil prices soar.

Approaching Fed Rate Announcement, USD/JPY Still Bullish

The release of Japan's Household Spending data this morning did not have a high impact on the movement of the Yen currency against the US Dollar. At the time this news was released, the USD/JPY pair was in the range of 116.27 or strengthened 0.12 percent from the daily open price. The market's focus is now on the meeting of the Fed, which is almost certain to announce a rate hike next week.