If the Fed is looking for reasons to cut rates later this year, the economy sure isn’t helping. Another huge jobs report and a tick down in the unemployment rate are going to make it more difficult for the Fed to justify cutting this summer, especially considering that the biggest categories for job adds were in manufacturing and healthcare, not leisure services, which had been driving employment growth in the past. This suggests perhaps a more expansionary element to the labor market instead of just a recovery one. That could mean there’s some sustainability to this theme of resilience.
Japan might not be so fortunate. They seem to be having much more trouble remaining in control of interest rates, the yen and future policy. The yen/dollar rate is still hovering right around that 151.5 level and the BoJ is still prepared to move in to support it at any moment. The narrative that I’ve been talking about over the past several weeks, that a steadily weakening yen could prompt unscheduled central rate hikes to get out in front of it, appears to be coming closer to fruition. BoJ governor Ueda acknowledged this week that 1) strong wage growth is likely to have an impact on inflation, 2) inflation is expected to accelerate in Q3 and 3) the BoJ could “respond with monetary policy” should conditions warrant. The yen strengthened on the comments, but on Friday has mostly given back those gains. It looks as if market forces still want to push the yen lower and the BoJ could find themselves in an increasingly tough spot.
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