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Even though the latest economic figures from Japan came in the green, looking beneath the surface reveals that the situation is not as rosy as the headline figures suggest.

1. Inflation slowed down again

For the month of October, Japan’s national core CPI came in as expected at 2.9%, down from the previous month’s 3.0% reading. The Tokyo core CPI fell from 2.5% to 2.4%, higher than the projected 2.3% figure. This marked the third straight monthly decline in core consumer price levels!

Minus the effect of the April sales tax hike, annual core inflation is up by only 0.9% for the month, far below the BOJ’s 2% target. Analysts project that price pressures could continue to weaken, as falling oil prices are making it more difficult for the central bank to boost inflation.

2. Falling wages

Japan’s employment report was a bit of a bright spot, as the unemployment rate improved from 3.6% to 3.5% in October instead of staying unchanged as expected. The jobs-to-applicants ratio, which is an indicator of hiring demand, climbed to 1.10 – its best level in more than 20 years.

However, wages picked up by a mere 0.7% from a year ago. Adjusted for inflation, wages are actually down by an annualized 3% in September, chalking up its 15th consecutive monthly decline.

3. Spending still hasn’t recovered

Given how wage growth isn’t keeping in pace with the increase in price levels, it’s no wonder that spending can’t seem to recover!

Household spending is down by 4.0% on a year-over-year basis for October, better than the projected 4.8% decline and the previous month’s 5.6% drop but still in the red for the seventh month in a row. Retail sales is up 1.4%, slightly lower than the estimated 1.5% reading and weaker compared to the previous 2.3% gain.

4. JPY’s negative reaction

Perhaps the biggest tell-tale sign that the latest economic figures failed to impress was the yen’s reaction to the reports. Prior to the releases, the Japanese currency had been licking its wounds and consolidating against most of its forex counterparts.

USD/JPY 1-hour Forex Chart
USD/JPY 1-hour Forex Chart

As you can see from the 1-hour forex chart above, USD/JPY made a strong upside break after the reports were released in today’s Asian trading session. This bearish yen reaction could be a sign that traders expect the BOJ to ease again sooner or later, as the reports indicated that the Japanese economy is still in a rut.