JAPAN DATA: IP & Retail Sales Close To Forecast, Y/Y Trends Improving
Japan's Jan (preliminary) industrial production read printed at -1.1%m/m, in line with market forecasts and after a -0.2% dip in Dec. Retail sales rose 0.5%m/m for Jan, just under market forecasts (0.6%m/m) and the prior outcome was revised to a -0.8% fall. In y/y terms, retail rose 3.9% after a 3.5% gain in Dec.
- The y/y IP trend recovered through the latter stages of 2024, but remained modest from an historical standpoint. The detail showed a sharp fall in capital goods related IP (down -5.7%m/m). Durable consumer goods provided some offset.
- Japan authorities expect Feb output to rise 5%m/m, while March output is expected to fall 2%.
- The retail sales y/y trend was similar to IP in that it has been recovering through the latter stages of 2024, which has extended into early 2025. The y/y pace is still sub the +5% pace that was observed in 2023.
- The authorities are working to drive positive real wage gains to underpin the consumer spending outlook in 2025.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
JGBS: Cash Bonds Slightly Richer, BoJ Dec MPM Minutes Out
In Tokyo morning trade, JGB futures are slightly stronger, +3 compared to settlement levels.
- Although somewhat dated after January’s rate hike, the BoJ's December policy meeting minutes indicated a willingness to raise rates if the economic outlook aligns with expectations. Members acknowledged that inflation expectations are rising moderately, though some see upside price risks as contained. There was also agreement that BoJ officials overseeing the financial system should attend policy meetings.
- One member noted that rates remain far from neutral and suggested that hikes should be timed appropriately, while another indicated that if rates approach neutral, the pace of hikes should slow.
- These minutes will be closely watched for longer-term BoJ policy direction.
- Cash US tsys are little changed in today’s Asia-Pac session ahead of today’s FOMC decision.
- Cash JGBs are flat to 1bp richer across benchmarks. The benchmark 10-year yield is 1.1bps lower at 1.191% versus the cycle high of 1.262%.
- Swap rates are 1-2bps lower. Swap spreads are mixed.
- The local calendar will also see Consumer Confidence data alongside 5-year GX supply.
AUD: A$ Correlations With AU-US Policy Outlook Remains Strong, Q4 CPI Due Soon
AUD/USD is little changed in the first part of Wednesday dealings, last near 0.6250/55, as the market awaits the Q4 and Dec monthly CPI outcomes. Whilst broader USD sentiment is heavily tied to tariff developments in the US, AUD/USD correlations with the relative AU-US monetary policy outlook remain quite strong. The table below presents the correlations with various macro drivers, in level terms, going back over the past 6 months. The strongest correlation is with the respective monetary policy outlooks priced for the two economies. If we shorten the correlation to the past month, it is much stronger with global equities (88%), which likely captures the broader risk shifts around the US/global outlook.
- Our bias for today's CPI print rests with the need for a downside surprise on the trimmed mean print (like sub 0.50%q/q, compared with the consensus of 0.60%) to see a Feb hike fully priced. Current pricing for the RBA Feb meeting is just under 80% priced.
- This would weigh on the AUD, with downside focus at 0.6209, the Jan 21 low. The bear trigger is back at 0.6131.
- Conversely an as expected outcome or upside surprise on trimmed mean, could see Feb cut odds trimmed and support AUD. Initial resistance is at 0.6325, the 50-day EMA.
Table 1: AUD/USD Correlations With Key Macro Drivers (Levels), Past 6 Months
Base Metals 0.306
Aggregate Commodities -0.366
Iron Ore-0.546
Global Equities -0.511
1yr Ahead AU-US 3mth Policy Rate Differential 0.912
Source: MNI - Market News/Bloomberg
STIR: RBA Dated OIS Slightly Firmer Ahead Of Q4 CPI
RBA-dated OIS pricing is slightly firmer across meetings ahead of today’s Q4 CPI data.
- However, current pricing remains 3-10bps softer compared to levels seen prior to the release of November’s Monthly CPI data in early January.
- Economists are divided on the timing of the first RBA rate cut, with opinions split between February and Q2. This makes today’s CPI data a critical focus.
- While the headline CPI is expected to rise by 0.3% q/q, bringing the annual rate down to 2.5% from 2.8%, the market’s attention will likely centre on the underlying trimmed mean and services inflation. These components will be scrutinised as government electricity rebates are expected to weigh on the headline figure.
- A 25bp rate cut is more than fully priced for April (121%), with the probability of a February cut at 76% (based on an effective cash rate of 4.34%).
Figure 1: RBA-Dated OIS – Today Vs. Yesterday
Source: MNI – Market News / Bloomberg
