Markets take stock after yesterday’s dovishness from new BoJ Governor Ueda
The yen was stable today, strengthening marginally to ¥133.5/USD, having yesterday tumbled following some unambiguously dovish first messages from the new BoJ leadership team after Ueda succeeded Kuroda as Governor at the start of the week. At his first meeting with PM Kishida, Ueda agreed that there was no immediate need to revise the BoJ’s joint statement with the government from a decade ago that has committed the Bank to achieving sustained 2% inflation “at the earliest possible time”. And at the subsequent first press conference of the new BoJ Governor and two Deputies, the message was that there will be no rush to change policy either. Indeed, the Policy Board will also first be given the opportunity discuss matters before deciding whether or not to launch a comprehensive review of the current policy framework.

Among other things, the new BoJ leadership clearly wants to take stock of recent events in the US banking sector and is mindful of risks of US recession over coming quarters. While it is encouraged by this year’s spring wage offensive – with the average wage increase, including both base pay and seniority rises, currently estimated by the Rengo union confederation at a 3-decade high of 3.70%, up from 2.11% at this time last year – it wants to see evidence that this improvement won’t be a one-off. Moreover, while Ueda is rightly mindful of the adverse side-effects of BoJ policy on the bond market, recent shifts in the UST market have taken some of the pressures off JGBs. With expectations for no immediate policy change, a key focus of the BoJ’s forthcoming Policy Board meeting, which concludes on 8 April, is likely to be the Bank’s updated economic projections in its Outlook Report, which will need to be reconciled with Ueda’s cautious approach to YCC and rates.

Chinese CPI inflation remains very subdued in March, with PPI more sharply negative too, leaving scope for further policy stimulus if required
While surveys have pointed to a strengthening in Chinese economic activity towards the end of the first quarter, inflation remained very subdued in March with prices at the factory gate well down on a year ago and another downside surprise to consumer price inflation. In particular, the headline CPI rate fell a further 0.3ppt to an eighteen-month low of just 0.7%Y/Y. That benefited in part from a further moderation in food inflation to a ten-month low of 2.4%Y/Y, with a notable drop in vegetable prices offsetting a pick up in pork prices. However, non-food inflation also moderated further, down 0.3ppt to 0.3%Y/Y, the lowest since February 2021 as industrial consumer goods prices fell 1.2ppts to -0.8%Y/Y. This was, however, partly offset by a modest pickup in services inflation – which the Chinese statistical office attributed to higher airfares and tourism inflation – albeit at 0.8%Y/Y this remained relatively subdued. Meanwhile, Chinese PPI data signalled a further lack of cost pressures for manufacturers, with producer prices unchanged on the month and so the annual rate down 1.1ppts to -2.5%Y/Y, the lowest since June 2020, with most major components softer. In particular, inflation of raw materials fell almost 3ppts to -4.2%Y/Y, while the consumer goods PPI rate fell to a twelve-month low of 0.9%Y/Y to 1.1%Y/Y, suggesting that CPI inflation should remain subdued for the time being even if and when economic growth momentum builds, and leaving scope for additional monetary or fiscal stimulus should activity underwhelm.

BRC survey suggests UK consumer spending continues to trend lower in real terms
While consumer confidence has stabilised over recent months, judging from the latest BRC survey, UK retail sales volumes likely remained in reverse in March as high prices continued to weigh on purchasing power. The BRC survey’s measure of the value of sales on the British high street rose 5.1%Y/Y, down just 0.1ppt from February, with same-store sales growth unchanged at 4.9%Y/Y. However, those rates pale in comparison with the BRC’s survey measure of shop-price inflation, which rose to 8.9%Y/Y that month. According to the BRC, the wettest March in more than four decades hit demand in several areas including apparel. But spending on certain other items reportedly benefited at the expense of spending on eating out, where inflationary pressures have been particularly intense.

Euro area retail sales likely to have fallen in February to extend negative spending trend
Looking ahead, today will bring the release of February retail sales figures from the euro area, which against the backdrop of still subdued consumer confidence and squeezed household budgets are likely to report a notable drop that month to keep the negative trend intact. Indeed, figures already released from Germany (-1.3%M/M), France (-0.4%M/M) and Italy (-0.1%M/M) were all disappointing. And the Bloomberg survey consensus is of a decline of 0.8%M/M, more than reversing the increase recorded in January (0.3%M/M). This morning will also bring the latest sentix investor survey for April, the first since last month’s bout of banking sector turbulence.

US small business sentiment survey results due later today
In the US, ahead of a busy schedule of top-tier US numbers (including March CPI tomorrow), today is set to be relatively quiet on the economic data front with just the NFIB small business survey for March due. The headline optimism indicator is expected to have edged slightly lower last month likely reflecting uncertainty surrounding the consequence of the banking sector stress. Meanwhile, the survey measure for hiring plans will be watched closely, with the share of survey respondents in February planning to increase job offers in the coming three months having fallen to the lowest since May 2020. In terms of Fed-speak, Chicago Fed President Goolsbee and Philly Fed President Harker are due to participate at separate public events.