Japan’s December data dump has yet again disappointed with most economic releases undershooting expectations.
Starting with the good news first, Japan’s unemployment rate held at 3.3% for a second consecutive month, in line with expectations.
Suggesting that labour market conditions continue to tighten, the national jobs-to-applicants ratio jumped to 1.27, the highest level seen since January 1992. It was above both the 1.25 level of November and expectations for an increase to 1.26.
The ratio simply measures the numbers of jobs available compared to actual job seekers. For an economy looking for wage growth, this is a promising sign.
While the outlook for wage inflation is improving, it has yet to create any inflationary effects.
From a year earlier core inflation, that which strips out fresh food prices, held at 0.1%, in line with expectations.
Suggesting that the national core inflation figure may fall back this month, the core figure for Tokyo slid to -0.1% in January, missing forecasts for an unchanged reading of 0.1%.
Given it is released ahead of the national figure, many analysts use the price movements from Tokyo to gauge what is likely to happen nationally in the month ahead.
The Bank of Japan inflation target of 2% is looking a long way away at present.
Adding to the disappointment, Japanese industrial output also missed forecasts, sliding 1.4% in December. The decrease followed a 1.1% contraction in November and was far below the 0.3% decline expected.
Looking further ahead, manufacturers suggest that output is likely to rebound 7.6% in January before contracting 4.1% in March. If recent form is anything to go by, the risks appear slanted to the downside.
Rounding off the data dump was household spending, and it came in well below expectations for December.
From a year earlier it fell by 4.4%, below both the 22.1% contraction of November and expectations for a decline of 2.4%.
It was largest annual contraction since March 2015.
Later this afternoon the Bank of Japan will announce its latest monetary policy decision.
In the wake of today’s largely disappointing data set, along with weak retail sales and trade figures for December, expectations for additional monetary policy easing to be delivered following this meeting are building.
Analysts at CBA put the likelihood of an expansion in the Bank of Japan’s QQE program at around 30%.