Macro Monday 41 ~ Japan Consumer Confidence Index Macro Monday 41
Japan Consumer Confidence Index
(Released Tuesday 9th April 2024)
Japan is the third largest economy in the world after the United States and China, contributing about 8% of global GDP, despite having only 1.8% of the world’s population. For such an impactful populace, lets see how the Japanese consumer confidence levels are looking at present. I promise you, it is very different to the western sentiment indicators.
The Japan Consumer Confidence Index (CCI) survey is conducted monthly and covers 8,400 households in Japan, which includes 5,376 households of two or more persons and 3,024 one-person households.
The survey has an unusually high response rate, with 90.6% of households responding in the latest survey.
The index is made up of a sub set of Consumer Perception Indices: These sub-indices cover:
1. Overall livelihood: Views of current living standards
2. Income growth: Expectations for income increase
3. Employment: Outlook on job security & availability.
4. Willingness to buy durable goods: Likelihood of purchasing high-value items.
The most incredible thing about the Japan CCI is that historically it has only risen above 50 indicating consumer optimism 3 times. Two of these occurrences were in the early 90’s and one was in the mid 00’s. All 3 were very brief with a reversion to pessimistic consumer sentiment in the months that followed. Since March 2006 the Japan CCI has remained below 50 indicating a prevailing pessimism amongst consumers in Japan.
You might be wondering why are consumers in Japan are so pessimistic about their circumstances and economy. Historically, Japan has faced periods of economic stagnation, deflationary pressures, and slow wage growth, which are known to dampen consumer sentiment. Additionally, the aging population and concerns about the future of social security and pensions may also contribute to a underlying cautious outlook.
Moreover, cultural factors might play a role; Japanese consumers are known for their saving habits and risk-averse nature, which can reflect in a more conservative CCI. It’s also important to note that the CCI is relative and can be influenced by the consumers’ expectations and experiences, which may differ from those in other countries.
In essence, while the CCI below 50 might suggest a pessimistic view, it’s a complex interplay of economic conditions, age factors, cultural tendencies, and historical events that shape consumer confidence in Japan.
The Chart
As evident on the chart below and from the commentary above, the Japan CCI has only risen above 50 level into the optimistic sentiment zone three time in history, thus I have taken the historic average reading of 40.86 as a mid-level to create a line from which we can determine above and below average consumer confidence in Japan (based on the historical average). I understand that this approach isn’t a perfect as the average level will change over time as new data is released, however we can use the 40.86 level as a rough guide for above and below average historical sentiment (not as a measure of optimism vs pessimism). This level can help us identify when Japanese consumers are less or more pessimistic than their historical average level.
Interestingly we are at the 39.1 critical level at present and the release tomorrow is an important release due to being at this important threshold level. We have been rejected from from the current level c.39.1 level twice in the recent past and if rise above 39.2, it will be the first time in 5 years that sentiment has risen above this level.
39.2 Level Significance
▫️ In Jan 2020 a fast rising and improving sentiment was rejected from the 39.1 level, and turned harshly lower to 21.6 in April 2020 (over 4 months).
▫️ Sentiment thereafter made a stark rise again only to be rejected a 2nd time from the 39.2 level in Nov 2021, with sentiment thereafter dropping to 28.6 in Nov 2022 (over 12 months).
▫️ Since Nov 2022 the Japan CCI has risen from 28.6 to 39.1 for Feb 2024. This will be the 3rd time since Jan 2020 that we have hit this level. We have been rejected twice from c.39.2 level over the past 4 years thus a break above this level would be a significant move in the right direction for sentiment in Japan.
Whilst a reading above 39.2 is ultimately still pessimistic as it is below the 50 level, we would still be making new highs not seen since May 2019 when we fell lower than 39.2 for the first time (since rising above it in Jan 2015)
If the Japan CCI can make a definitive move above this 39.2 level, I would see this as a positive indication of improving sentiment in Japan (in other words less pessimistic).
If we thereafter made a move above the historical average of 40.86, I would view this as another significant positive confirmation of a less pessimistic consumer in Japan.
Given the age, cultural and monetary differences between Japan and other countries, particularly those in the west, we can only look for thresholds of lessor pessimism using the Japan CCI as since March 2006 the Japan CCI has remained below 50 indicating a prevailing pessimism amongst consumers in Japan. The chart still informs of us of a lot and provides clear thresholds that we can pay attention to to gauge consumer sentiment in Japan.
As always the beauty of the above chart and any others I share is that you can go onto my TradingView ideas page and press update, and the chart will update you with the most recent data release, informing you at a glance how the data looks on the chart with a nice visual guide with all the above thresholds easily visible. Hope it helps you stay visually informed at a glance with a click of a button.
Thanks all
PUKA
