Economic Takeaways From Japan's Inflation, Unemployment Reports

Breaking Down Japan's Inflation Data
  • Energy prices hold core inflation gauge in negative territory
  • Falling unemployment rate belies continued weakness in wages

What you need to know about Friday’s Japan economic data:

CONSUMER-PRICE INDEX (OCTOBER)

  • Core CPI excluding fresh food fell 0.1 percent from a year earlier (-0.1 percent forecast) following declines in September and August.
  • So-called core core CPI, which excludes energy and all food, rose 0.7 percent (0.8 percent forecast).
  • Overall CPI inched up 0.3 percent (0.2 percent forecast).
  • The Bank of Japan released an alternative index later Friday that excludes fresh food and energy. It rose 1.2 percent for the second straight month.

The Takeaway: While core CPI is the Bank of Japan’s gauge for measuring progress toward its 2 percent inflation goal, core core CPI and the BOJ’s alternative measure may give more clues to any changes for monetary policy. They’ve shown rising prices since 2013, supporting the argument by Governor Haruhiko Kuroda that the underlying trend in inflation is improving, once you strip out the impact of lower oil costs.

What economists said: “Non-energy goods inflation should continue to moderate,” Marcel Thieliant of Capital Economics wrote in a note after the data was released. “The bigger picture is that the recent weakness in activity has left a sizable amount of spare capacity that will dampen price pressures for a considerable time.”

Analysts are divided into two camps on the likelihood of further monetary stimulus -- with one group expecting more early in 2016 and the other projecting no change for the foreseeable future.

JOBLESS RATE (OCTOBER)

  • The jobless rate stood at 3.1 percent (3.4 percent forecast), compared with 3.4 percent in September. That’s the lowest since 1995.
  • The job-to-applicant ratio was 1.24 (1.25 percent forecast), indicating a tight employment market.
  • At the same time, the labor force shrank by 230,000 people from September and the participation rate dropped to 59.9% from 60.2%.

The Takeaway: The labor market should be a bright spot for Japan’s economy, which suffered a mid-year recession. Yet while unemployment is low and jobs are plentiful, this hasn’t translated into strong wage gains that could help spur inflation. Kuroda has said wage gains have been “somewhat slow” considering strong corporate profits and the solid labor market.

HOUSEHOLD SPENDING (OCTOBER)

  • Household spending fell 2.4 percent from a year earlier (forecast unchanged).

The takeaway: Disappointing wage gains help explain the weakness in household spending, and without a change here Kuroda will struggle to spur inflation and economic growth.

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