Japan’s Services Sector in the Spotlight

On Tuesday, December 16, preliminary private sector PMI data will be in focus. The S&P Global Services PMI will be the focal point, given that services account for around 70% of the GDP. Economists forecast the S&P Global Services PMI to drop from 53.2 in November to 51.6 in December.

While slower services sector activity may signal a loss of economic momentum, holding above the 50 neutral level will be key. Furthermore, traders should focus on the employment and prices sub-components. A tighter labor market, higher wage growth (input prices), and hotter inflation (output prices) would signal a more hawkish BoJ rate path.

Will Trade Data Greenlight a December Rate Hike?

On Wednesday, December 17, Japanese trade data will provide insights into the effect of US tariffs on demand. Economists predict exports to rise 4.8% year-on-year (YoY) in November, up from 3.6% in October. Imports are expected to rise 2.5% YoY in November, up from 0.7% in October.

A sharp pickup in external demand and robust imports would support Governor Ueda’s view that US tariff risks have diminished. Given Japan’s trade-to-GDP ratio is roughly 45%, improving trade terms would boost the economy and demand for the yen.

For context, external demand fell 0.2% quarter-on-quarter in Q3, contributing to a 0.6% economic contraction. However, the US reduced tariffs on Japanese goods from 25% to 15% in Q3, boosting external demand early in Q4.

Japanese National Inflation in Focus Pre-BoJ Policy Decision

On Friday, December 19, national inflation figures will draw interest ahead of the BoJ’s monetary policy decision. Economists forecast the so-called core-core annual inflation rate to remain at 3.1% in November. Steady or rising core-core inflation would boost expectations of a more hawkish BoJ monetary policy outlook.