Japanese industrial production sunk to its lowest level since the aftermath of the devastating 2011 earthquake, while inflation printed in deflationary territory, adding fuel to Abe’s calls for more aggressive easing from the BoJ. Hence, the yen lost even more ground against the dollar during the session, with USDJPY briefly rising above 86.60 despite the fact that the negative CPI print was largely expected.
Japan is in deflationary territory
Economists’ forecast CPI to fall 0.1% y/y (excluding fresh food) to November, exactly in line with the actual figure. Abe has been very vocal about raising the BoJ’s inflation target from 1% to 2%, a long way from current levels, and to get there the government is somewhat forcefully encouraging the BoJ to kick easing up a few gears, to go along with planned spending proposals. Overall, the prospect of more aggressive easing from the BoJ, be it through a new, more dovish BoJ chief or a complete rewriting of the Bank of Japan Act, has been the driving force behind recent yen weakness.
Mixed Japanese data
Industrial production in Japan fell 1.7% m/m for November, significantly higher than the 0.5% fall that was expected by economists. Today’s data highlights that last month’s 1.6% rise was the exception, not the rule. However, it wasn’t all bad news for Japan, the rest of the data out today printed better than the industrial production figures. In fact, Japan’s jobless rate dropped to 4.1% from 4.2% in November, while Japan’s job-to-applicant ratio remained unchanged at 0.80. Overall household spending increased 0.2% in November, slightly less than the expected 0.7% increase but more than the prior 0.1% fall.
The US looks set to breach its official fiscal cliff deadline
In other news, budget talks in the US appear to going nowhere at the moment, with congressional leaders attempting to assign blame rather than negotiate a solution. Whilst it is widely know that the treasury can keep the US afloat for a couple of months after the end of year deadline, the market is in a very fragile state coming into the New Year. However, President Obama has cut his holiday trip to Hawaii short to fly back to Washington. He plans to meet congressional leaders in a last ditch attempt to find some middle ground before year-end, although the market hasn’t got its hopes up.
The market will be closing monitoring a debt sale in Italy and French consumer spending figures. Italy is scheduled to host a 10-yr bond auction some time tonight, which is going to be a key gauge for signs of stress in the domestic economy ahead of general elections in February.