FXTRADING Economic Data Summary (Asia-Pacific | 06/22)

Japans Inflation Slowdown Unlikely to Derail Policy Normalization

Japan‘s core CPI rose 1.4% yoy in May, in line with market expectations and marking the fourth consecutive month below the Bank of Japan’s 2% target. Headline CPI edged up from 1.4% yoy to 1.5% yoy, while the core-core CPI, which excludes fresh food and energy, slowed from 1.9% yoy to 1.8%, its lowest level since September 2022, indicating some moderation in underlying inflation momentum.

Government fuel subsidies continued to suppress price pressures, with energy prices falling 2.5% yoy. Gasoline prices declined 7.0%, while electricity costs dropped 2.4%. Food inflation also eased, with price growth slowing from 4.1% to 3.5%. However, cost pressures at the producer level are still building, and higher raw material costs could gradually pass through to consumers. FXTRADING believes that the recent slowdown in inflation is largely driven by subsidies and does not signal the disappearance of price pressures. As cost pass-through becomes more evident, expectations for further policy normalization by the Bank of Japan later this year remain intact.

Canadian Retail Sales Rebound

Canadas retail sales increased 0.5% mom to CAD 73.0 billion in April, slightly below the market expectation of a 0.6% increase. Five out of nine sectors posted gains, indicating a modest recovery in consumer spending. Sales at gasoline stations and fuel retailers rose 5.1%, providing the main boost to overall retail activity.

However, excluding gasoline, motor vehicles, and auto parts, core retail sales declined 0.7% mom, marking the second consecutive monthly decline and suggesting that households remain cautious about discretionary spending. Statistics Canadas preliminary estimate points to a further 1.0% increase in retail sales for May, indicating that consumer demand retains some resilience. FXTRADING believes that the recent increase in spending has been driven mainly by energy-related purchases, while underlying demand remains relatively weak. If consumers continue to restrain spending, household consumption may provide less support to economic growth.

ECB Officials Continue to Deliver Hawkish Signals

Although the European Central Bank has already raised rates in June, policymakers have not signaled the end of the tightening cycle. Chief Economist Philip Lane stated that it remains difficult to conclude that a 2% policy rate is sufficiently restrictive. Meanwhile, the ECB has raised its estimate for the upper bound of the neutral rate from 2.25% to 2.50%, reflecting increased confidence in the economys ability to withstand tighter monetary conditions.

At the same time, eurozone services inflation accelerated from 3.0% to 3.5% in May, raising concerns among some policymakers. Belgian central bank governor Pierre Wunsch said that another 25 basis point rate hike could not be ruled out if similar trends persist. Market expectations for a prolonged period of restrictive monetary policy have strengthened. FXTRADING believes that service-sector prices remain a key focus for the ECB, while the higher neutral rate estimate leaves room for additional tightening. If inflation fails to slow as expected, the ECB may still raise rates further.

UK Consumer Spending Remains Resilient

UK retail sales rose 1.2% mom in May, well above the market forecast of 0.5%, while annual growth accelerated to 3.2%. Warmer weather and promotional campaigns supported spending, with both online and brick-and-mortar channels showing stronger demand, highlighting the resilience of household consumption.

Sales at non-store retailers surged 6.1% mom, marking the strongest increase since February and pushing sales volumes to their highest level since early 2022. In the three months to May, retail sales increased 0.4% from the previous three-month period and were up 1.4% from a year earlier, suggesting that the overall consumption trend continues to improve. FXTRADING believes that household spending has not yet been significantly affected by the high-interest-rate environment, while favorable weather and promotions have provided a short-term boost to demand. If the labor market remains stable, consumption is likely to continue supporting the UK economy.

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