BoJ Deputy Governor Ryozo Himino recently said,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

While intervention threats may cap the upside, the Bank of Japan may need to take a more hawkish stance to begin restoring buyer demand for the Yen.

Can economic indicators from Japan raise investor bets on a July BoJ rate hike?

Retail Sales and Tokyo Inflation: Crucial Data Releases for the BoJ

On Thursday, June 27, retail sales figures from Japan could influence investor expectations of a July BoJ rate hike. Economists forecast retail sales to increase 2.0% year-on-year in May after a rise of 2.4% in April.

Investors could take better-than-expected numbers as a cue for the BoJ to consider raising rates in July. Upward trends in consumer spending could fuel demand-driven inflation.

However, labor market data and inflation numbers for Tokyo (Fri) could affect sentiment toward the BoJ rate path more.

Economists forecast the Tokyo core annual inflation rate to rise from 1.9% to 2.0% in June. Furthermore, economists expect the annual inflation rate to increase from 2.2% to 2.4%.

Hotter-than-expected numbers and a steady unemployment rate could greenlight a July BoJ rate hike.

The BoJ could justify a market-influencing move by highlighting the effects of the weaker Yen on the Japanese economy.

While economic indicators from Japan will influence the USD/JPY, US data could affect views that interest rate differentials have peaked.

US Housing Market Data and the Fed Rate Path

Investors will turn their attention to US housing sector data later in the Wednesday session.

Analysts predict a 2.9% rise in US new home sales for May, following a 4.7% decline in April. Market participants should be mindful of trends, as new home inventories can cause fluctuations. Rising inventory trends might alleviate price pressures and reduce costs for housing services, including rents. Housing services inflation contributes to headline inflation.

Furthermore, upward trends in new home demand could indicate strong consumer confidence. Increased consumer confidence might boost consumer spending and bolster expectations of a US soft landing.