Both labor cash income and total household spending came in below market expectations on an annualized basis in December, with labor cash income rising 1 percent versus expectations of 1.3 percent, falling short of a 0.7 percent gain from a sharply upwardly revised 0.2 percent.

Japan's average household consumption expenditure annual rate of -2.5%, below market expectations of -2.1%, and only marginally improved from the previous reading of -2.9%.

Market reaction

Heading into Tuesday's morning session, USDJPY was trading around 148.60, maintaining its strength after rallying above the 148.00 mark late last week.

About Japanese labor cash income

Japan's Labor cash income is released by the Ministry of Health, Labor and Welfare and shows the average pre-tax earnings per regular employee. It includes overtime pay and bonuses, but does not include income or capital gains from holding financial assets. Rising incomes will put upward pressure on consumption and inflate the Japanese economy. In general, if the indicator is higher than expected, the yen is bullish, and if the Japanese labor cash income is lower than expected, the yen is bearish.

About total household expenditure

The total household expenditure released by the Ministry of Internal Affairs and Communications is a measure of total household expenditure. Spending levels can be an indicator of consumer optimism. Total household spending is also seen as a measure of economic growth. A rise in total household spending is positive for the yen, while a fall in total household spending is negative for the yen.