From late last week through the weekend, two important developments unfolded in the United States and Japan.
On September 4, the August U.S. employment report showed that nonfarm payrolls rose by +22,000 m/m, while the unemployment rate climbed to 4.3%, the highest since October 2021.
On September 7, Prime Minister Shigeru Ishiba announced his resignation, making it certain that the Liberal Democratic Party (LDP) leadership election will be brought forward.
A weak U.S. jobs report is generally seen as dollar-negative via downside risks to U.S. growth and expectations for Fed rate cuts, while Ishiba’s departure is viewed as yen-negative via fiscal-expansion risk and a potential delay to BOJ hikes.
Indeed, after USD/JPY strengthened by roughly one yen to the low 147s on the 5th, it has since returned to the 148s today.
With U.S. and Japan factors tugging in opposite directions, the key question is which set of risks dominates.
Let us first examine the details of the U.S. labor data.
