CHARTS: Japanese data comes out mixed -- here's why it's a big deal for markets

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Japanese economic data released this morning has come out mixed.

Normally that’s a humdrum statement but there is a Bank of Japan monetary policy decision later today, and for markets that means there is lots to talk about.

Let’s walk through it.

Inflation, the centre of market attention given the Bank of Japan’s focus on achieving a price stability target of 2%, remained weak, with both the headline and core annual rate printing at-or-below 0%.

Core inflation fell 0.1% compared to September 2014, a result that was in line with the decline of August but above the 0.2% fall expected. Core inflation in Tokyo, a forward indicator for price movements nationally next month, fell 0.2% from October 2014, in line with the decline seen in September but below the median market forecast for an improvement to -0.1%.

Headline inflation nationally came in flat in the 12 months to September, below the 0.2% increase in August.

While inflation remains weak, in what will help underpin inflation expectations, labour market conditions remained tight in September. The unemployment rate held steady at 3.4%, in line with expectations, while the national jobs-to-applicants ratio, simply the number of job opening for job seekers, rose to 1.24. The ratio now sits at the highest level seen since January 1992, and adds to evidence that job market is tightening, potentially adding to inflationary pressures in the future.

The major disappointment of the three data sets came from household spending which printed well below market expectations. In September spending slid by 1.3%, well below the 0.3% gain eyed, leaving the annual rate at -0.4%. It was significantly below the 2.9% growth registered in August.

After the mixed data set, market attention will now turn to the Bank of Japan’s October monetary policy decision later this afternoon. No time is set for the announcement, and most expect that the bank will hold tight in expanding their QQE program, but there is a possibility that the bank may lift its annual expansion in the nation’s monetary base beyond the 80 trillion yen level currently targeted.

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