Japanese household spending in April fell at the fastest rate in three years, data showed Friday, in a sign that consumption could be slow to recover from an increase in the nationwide sales tax, raising questions over the pace of economic recovery.
Industrial production fell more than expected in April as companies cut output to avoid a pileup in inventories in the lull after the sales tax increase took effect.
Officials at the Bank of Japan have repeatedly said that they are confident spending will quickly recover because the labor market remains tight, but the bigger-than-expected spending drop in April and a slowdown in factory activity could raise the stakes for monetary policy.
The yen fell 0.7 percent to 83.07 to the dollar at 8:30 am in New York this morning from yesterday’s close of 82.48. Recent comments from the European Central Bank have raised expectations of an interest rate hike at the next ECB scheduled for early April and this has investors selling yen to purchase Euro-based assets.
There is a growing belief that the yen will be used as the funding currency for a resurgence of the carry trade. This could be beneficial to Japan and may help prevent an appreciation of the yen thereby supporting Japan’s export industry struggling to recover from the damage caused by this month’s tsunami.
As expected, the Bank of Canada announced it was raising the benchmark lending rate by 25 basis points to 0.75 percent. This is the second increase in the past two months and comes as the Canadian economy continues to recover from last year’s recovery. Bank of Canada Governor Mark Carney gave little indication of future interest rate plans, but some analysts suggest there could be another 25 basis point increase in the near future to bring the lending rate to an even 1 percent.
Disappointing earnings from Goldman Sachs and IBM are expected to send North American stock markets into negative territory at this morning’s open. A weaker-than-expected housing starts report is also giving investors the jitters this morning.
Ahead of the opening bell, Dow Jones industrial average futures fell 84, or 0.8 percent, to 9,976. Standard & Poor’s 500 index futures dropped 10.10, or 1 percent, to 1,054, while Nasdaq 100 index futures fell 17, or 0.9 percent, to 1,789.
Source: Associated Press