Global Jobs Update: U.S. & Japan

U.S.

After a major stumble in March, U.S. jobs data for April seems to be back on the light side of the force.

U.S. non-farm payrolls was slightly below expectations at 223K but it was still significantly better than the previous reading, which was revised downward from 126K to 85K. April’s jobless rate also slid down by 0.1% to 5.4% as expected, the lowest since May 2008. Even better, the labor force participation rate slightly went up by 0.1% to 62.8%. Both the jobless rate and labor force participation rate figures contribute greatly to the Fed’s goal of maximum employment. The only disappointment was average hourly earnings (wage growth) which posted a 0.1% increase versus the expectation that it will remain flat at 0.2%.

So there you have it! U.S. jobs data seems pretty robust. But before you go and load-up on Greenbacks, make sure to consider other economic indicators too. Advance Q1 2015 GDP, for example, only grew by 0.2% (1.0% expected, 2.2% previous). Monthly core CPI has also been steady at 0.2% which doesn’t really help in achieving the Fed’s 2.0% inflation target.

Also note how the Fed practically spelled out in the recent FOMC meeting minutes that a rate hike in June is closer to fantasy than reality: “Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate has been satisfied, although they generally did not rule out this possibility.”

Japan

Japan’s jobless rate in March fell by 0.1% to 3.4%, a 16-year low. On the surface, this is good for Japan, but what do the details say? Well, not so good because productivity fell to 96.5 from 104.5 which means economic output actually declined even though more people have jobs, which is bad for a country like Japan whose economy is driven primarily by industry and services.

The seasonally adjusted labor force participation rate also fell down to 59.5% from 59.7%, which is also bad and probably contributed to the decrease in the jobless rate. Further more, while the number of jobs in Japan from March 2014 to March 2015 increased by 210K, the working-age population actually declined by 1,070K due to the aging Japanese population. And this probably contributed to the decline in labor force participation rate (i.e. size of working-age population contracts due to people becoming too old to work). So what can we expect in the future? More of the same, that’s what. We’ll probably see the jobless rate decline further with the labor force participation rate declining in tandem.

So, what does it mean for the Japanese yen? Well, not much actually, at least in the short and medium term. This is because the Japanese economy is export-driven and is more reliant on industry rather than on consumer spending. Plus, consumer spending has actually been dampened by a series of hikes on sales tax and yet prelim Q1 2015 GDP recently improved.  Long-term, more people without jobs spells trouble for any economy as it could lead to not only falling inflation pressures, but government financing and social issues as well. It’s likely we’ll see the Bank of Japan stay in easy money mode for quite some time.

Overall, given the scenarios with both the U.S. and Japan, it’s probably no surprise that we’re seeing USD/JPY poised to break out and make new highs in 2015.  What do you think? Will USD/JPY break 122.00 or will sellers hold and reverse this psychologically significant level?

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