Japanese data showed on Tuesday that the labor market continued strengthening in July in line with expectations, remaining near full employment conditions. However, other data on household spending indicated that better labor conditions did not support consumption in the aforementioned period. The yen overall experienced substantial demand today, hitting a 4 ½ – month high as heightened geopolitical tensions in the Korean peninsula came into the spotlight.
During early Asian trading hours, the Japan Institute for Labour Policy and Training released figures on the jobs to application ratio and the unemployment rate for the month of July. According to the numbers, each applicant was assigned to 1.52 available positions as expected, compared to 1.51 positions in the previous month. This was the highest jobs to application ratio recorded since February 1974, when the Japanese economy was booming.
Regarding the unemployment rate, this matched expectations, remaining steady at June’s mark of 2.8% in July and indicating that the Japanese labor market was operating near full employment conditions. Note that, this level was last seen back at the end of the 1980s and early 1990s when the unemployment rate was fluctuating around 2.0%.
While the labor environment seems to be improving, consumers surprisingly held back from purchases. Based on Statistics Bureau, household spending turned negative after three months of rising, falling by 1.90% month-on-month. Analysts anticipated that consumers’ spending would decline moderately by 0.50% following 1.50% growth in June. On a yearly basis, household spending dropped by 0.20% compared to a rise of 0.70% forecasted and a 2.30% growth seen in June.
Even though core inflation showed signs of building momentum, rising slowly for four consecutive months to 0.40% in August, the recent downturn in household spending is less likely to provide support to inflation in the upcoming months. Moreover, most companies’ attitude of refusing to increase prices in order to avoid losing clients, as wage growth remains subdued, restricts inflation from approaching the BOJ’s target of 2.0% anytime soon. Nevertheless, the Japanese government expressed yesterday its persistent optimism on the economy’s outlook, stating that that business spending, exports, and output were “picking up” while it also said that private consumption was growing moderately, signaling a solid recovery.
Turning to the reaction in the forex markets, dollar/yen reacted little to the data as geopolitical risks heightened substantially on Tuesday after Japan announced earlier today that a ballistic missile weapon, launched by North Korea, flew across the Japanese island of Hokkaido before it fell into the Pacific Ocean. The pair dipped by 0.55% to a 4 ½ -month low of 108.32 as investors were selling riskier assets to buy safe haven ones including the yen. However, the pair managed to climb to a session high of 108.93 immediately after the data release but its gains were short-lived as it pulled back to 108.39 afterwards.
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