Japan’s slew of economic data isn’t a game changer

Japan released CPI, industrial production, manufacturing PMI and labour market data today with mixed results. In October consumer prices rose 1.1% y/y as expected and core-core CPI, which excludes food and energy prices, rose more than expected at 0.3% y/y. Preliminary industrial production for October increased less than expected at 0.5% (exp. 2.0%) and Japan’s jobless rate remained steady at 4.0% (exp. 3.9%), while manufacturing PMI jumped to 55.1 from 54.2 this month. Does this mean Japan’s economy is on the right track?

We think the most encouraging piece of data was the unexpected jump to 0.3% in core-core CPI, bringing it back into positive territory for the first time since 2008 (we look at core-core CPI because a weakening yen distorts import prices, thus it’s helpful to remove this from the equation for a cleaner look at inflation). This suggests that the Japanese economy is heading in the right direction, underpinned by fiscal and monetary support. However, as we noted on CNBC earlier today, inflation remains low and we think the BoJ will need to do more to reach its 2% inflation target, especially if next year’s hike in the sales tax hits the economy harder than Tokyo currently thinks.

The yen was largest unmoved by today’s data, which isn’t surprising given that the data ins’t a game changer from a policy perspective. In the near-term, USDJPY may be capped around 102.45/55 but this could change next week as the market prepares for the release of US labour market data for November. A break of 102.55 could open the door for a push towards 103.35. On the downside, we’re watching a key pivot zone around 101.95.

Source: Forex.com