Japan’s latest labor data has failed to meet expectations, with nominal cash earnings rising only 2.4% year-over-year (y/y) in December, falling short of the predicted 3.2% increase. Moreover, real cash earnings saw a meager 0.1% y/y gain, missing forecasts of a 0.8% rise. This disappointing data suggests limited upward pressure on inflation, which could have implications for the Japanese economy and its currency, the USDJPY.

To start with, the slowdown in labor earnings growth is a cause for concern, particularly given Japan’s aging population and declining workforce. As the country’s working-age population continues to shrink, it becomes increasingly important that wages grow at a pace that supports economic growth and keeps up with inflation. The current pace of wage growth, however, is not only below expectations but also trails the pace of inflation, which could lead to a further slowdown in consumer spending and investment.

Furthermore, the miss in real cash earnings is particularly concerning, as it suggests that the purchasing power of Japanese workers is declining. This could have implications for consumer confidence and spending, which are critical drivers of economic growth. With inflation already running at a relatively high rate, the lack of wage growth to keep pace with it could lead to a further erosion of purchasing power and potentially slower economic expansion.

Looking ahead, the disappointing labor data may have implications for the USDJPY exchange rate. With limited upward pressure on inflation and slowing wage growth, there may be less upside for the Japanese currency. In fact, some analysts are already predicting further declines in the currency as investors become more risk-averse and seek safer havens for their investments.