Your browser does not support JavaScript! Pls enable JavaScript and try again.
Japan architecture


Japan’s trade deficit surge amid Yen weakness, inflation hits four-decade high but BoJ Governor Kuroda unmoved

  • JPY: Japan’s real exports increase 1.3% MoM in October after a 0.2% MoM gain in September, driven by intermediate goods, auto-related goods and IT-related goods. The October level stands 1.6% above the third quarter average (+3.0% QoQ in Q3 and -2.8% QoQ in Q2). Exports to Europe and the US continue to grow while exports to China weaken. However, goods exports look likely to mark time into next year as the global economy decelerates, especially in Europe and the US. Meanwhile real imports show continued solid growth — real imports increase 5.4% MoM in October after a 3.8% MoM fall in September, with the October level standing 3.8% above the third quarter average (+3.2% QoQ in Q3 and +1.8% QoQ in Q2). Imports increase across a wide range of items with a domestic demand recovery likely to support the uptrend in the months ahead. Japan’s trade deficit increases modestly in October - the trade balance is ¥2.1623trn in deficit before seasonal adjustments and ¥2.2991trn in deficit after adjustments in October (-¥2.0943trn and -¥2.0368trn, respectively, in September). The trade deficit after seasonal adjustment increases modestly as real import growth outpaces real export growth. 
  • JPY: Data released Friday also shows Japan’s core consumer prices up to a new high of 3.6%y/y in October, the fastest pace since 1982 largely due to rising energy costs and a weak Yen. The data, which excludes volatile fresh foods prices but includes oil products, is higher than consensus for 3.5%y/y and the prior month at 3.0%y/y in September. Looking ahead, the weak Yen should continue to buoy prices of imports and Citi analysts expect core CPI inflation to increase further into December. BOJ Governor Kuroda however looks unmoved by the data, instead pointing out that Japan’s inflation is currently being led by cost-push factors and until there is evidence of higher wages underpinning inflation, the BoJ would be firmly supporting the Japanese economy through its ultra-easing policy. As such, the hotter-than-expected CPI print will not prompt the BOJ to shift away from stimulus anytime soon. 
UK: lower consumer confidence, high inflation to constrain household expenditure
  • GBP: UK retail sales increase by 0.6% MM in October after two months of contraction, largely matching the 0.5% MM consensus forecast. Excluding auto fuel, retail sales grow more slowly, up 0.3% MM in October despite a drop of 1.5% MM in September, confirming the underlying weakness of the UK household sector. Despite a marginal 3-point improvement in the GfK consumer confidence survey to a -47% balance in October, retail sales remain 0.9 percentage points lower than in August, illustrating that strength of the headwinds from  household expenditure to GDP in the fourth quarter. Sales are declining by around 6% YY on the three-month average basis, in keeping with the abrupt drop of 30 points in household confidence over the last 12 months that remains close to record lows against a backdrop of soaring inflation and recessionary conditions.
Week Ahead - Fed minutes, euro area and UK flash PMIs and RBNZ board meeting
  • USD: The main event of the week should be Fed minutes from the November meeting. Many Fed official have commented that one-month of CPI data does not change the outlook for policy. An essay from Atlanta Fed Bostic also acknowledges that while goods inflation could be slowing, services have not shown signs of slowing yet. Comments from Kansas City Fed President George have also highlighted the important role of a too-tight labor market in keeping inflation high, acknowledging a contraction in activity (i.e. recession) could be necessary to bring inflation down. Governor Waller has also reiterated the Fed still has “a ways to go” in raising rates and also mentioned the possibility of 50bp rate hikes beyond December while Fed President Bullard late last week indicated a 5.00-5.25% Fed Funds rate would be the minimum needed. However, based on the Fed speak heard since the November FOMC meeting, there seems to be fairly broad consensus among Fed members to slow down the pace of hikes in the upcoming meeting. More interesting would be any discussion around the messaging about the higher terminal rate and criteria for understanding the right level of restriction.  
  • EUR: Euro Area Recession Watch: Business Sentiment finally stabilizing? – Citi analysts are above consensus for most of the business and consumer confidence measures, based on falling energy prices and government support. The ECB will also release accounts of the September meeting, where it raised rates by 75bp. Also interesting will be the flurry of speeches and look for commentary on the latest German wage deals and the risk of second round effects or even a wage price spiral. IG Metall union, the biggest labor union in Germany has confirmed that 3.9mn manufacturing workers will get wage increases from next year which amounts to annual wage growth of 7.2% in 2023 and 4.2% in 2024. This has fueled talk the ECB could raise rates for longer. However, Citi analysts note that the rise comes after zero wage growth this year and last, and that its front-loaded, so it’s more likely seen as compensation for past inflation rather than expectation of high future inflation. Euro Area Manufacturing PMI, November: Citi Forecast 46.4, Consensus 46.0, Prior 46.4; Services PMI, November: Citi Forecast 48.6, Consensus 48.0, Prior 48.6; Composite Output PMI: Citi Forecast 47.3, Consensus 47.0, Prior 47.3; German Ifo Business Climate, November: Citi Forecast 85.5, Consensus 85.0, Prior 84.3 (towards the recovery quadrant); Ifo Expectations, November: Citi Forecast 78.0, Consensus 77.0, Prior 75.6; Ifo Current Assessment, November: Citi Forecast 93.0, Consensus 93.8, Prior 94.1; Euro Area: Consumer Confidence, November: Citi Forecast -25.0, Consensus -26.9, Prior -27.6 (second successive improvement?).
  • GBP: UK PMI’s moderating, activity continuing to soften – this week will see the UK PMI data for November. Citi analysts expect a further leg down as underlying consumer demand continues to slow. Citi analysts expect the services PMI to fall further below 50, with the trough in these data only likely to come in Q2-2023. UK Manufacturing PMI, November: Citi Forecast 45.8, Consensus 45.6, Prior 46.2; Services PMI, November: Citi Forecast 47.8, Consensus 48.0, Prior 48.8 (autumnal squeeze intensifying).
  • NZD: NZ November RBNZ Official Cash Rate and Monetary Policy Statement: Citi OCR forecast; +75bps to 4.25%, Previous; +50bps to 3.5% - Citi analysts expect the RBNZ MPC to steepen its pace of rate hikes in November and lift the OCR by 75bps to 4.25%, cementing the RBNZ as one of the more hawkish central banks globally. This will take monetary policy well into restrictive territory (above the average neutral estimate of around 2%). The acceleration in rate hikes from 50bps to 75bps would come from a combination of a tight labor market, an acceleration in wages, and higher than expected inflation in Q3. Citi analysts also expect large upward revisions to inflation forecasts in the November SMP. The team also pencils another 50bp hike in February after which the RBNZ is likely to pause for the remainder of 2023, implying a terminal policy rate of 4.75%.