Mixed economic messages from Japan

There has been a slew of economic data released from Japan this morning that sent the market some mixed signals. As a result USDJPY has been a little jumpy in early Asia trade, yet the pair seems to have stabilized around 109.40 for the time being, with investors also keeping a close eye on the protests in Hong Kong.

Japan’s miraculous jobless rate

Japan’s jobless rate unexpectedly dropped to 3.5% in August (the market had expected it to remain at 3.8%), which matches the lowest level this year. Also, retail sales and retail trade came in stronger than expected last month, with the former jumping 1.9% m/m (exp. 0.5%; prior -0.5%) and the latter increasing 1.2% y/y (exp. 0.1%; prior 0.6%). The increased activity at the ground level is encouraging, but it’s likely partly attributable to increased spending in the lead up to another possible increase in the sales tax, thus it may not accurately reflect the strength of the retail market.

Industrial production and household spending disappoint

The rest of today’s data was decidedly less encouraging. Industrial production unexpectedly fell 1.5% m/m in August (exp. 0.5%; prior 0.4%), despite a weaker yen. Nevertheless, the recent collapse in the yen should bode well for September’s industrial output data. Overall household spending in August also came in below expectations at -4.7% y/y (exp. -3.6%; prior 5.9%).

Nothing to cheer about… yet

On the whole, August strong jobs and retail data isn’t going to do much to dissuade calls for more easing from Tokyo. The strong retail figures are likely overinflated and thus not a true representation of activity at the ground level, and while the drop in the unemployment rate is encouraging, what we really want to see is more upward pressure on wages.

Eyes on wage growth

Labour cash earnings rose 2.6% in the year to July, which is their fastest pace since 1997. The persistence lack of wage growth in Japan has arguably been one of the biggest restrictions holding back domestic demand, thus a significant pick up in wages could go a long way to help the economy recover in the second half of the year.