JAPAN DATA: Aug Labor Earnings Notably Sub Forecasts, BoJ Likely Holding In Oct
August labour earnings data in Japan was comfortably below market expectations. Headline earnings rose 1.5%y/y (against a 2.7 forecast and 3.4% July outcome), while real earnings dipped back to -1.4%y/y (-0.5%) was forecast. Real earnings have not been in positive territory (in y/y terms) so far in 2025. This will reinforce expectations of the BoJ likely remaining on hold at the Oct policy meeting. Japan's new political regime had already noted that Oct is too soon for a rate hike. BoJ Governor Ueda also noted recently that the risk was low for the central bank to fall behind the inflation/policy curve( with today's data supporting this theme).
- The chart below updates the household spending versus real labour earnings trend post today's data. Recall yesterday that household spending was stronger than forecast but today's real earnings data re-opens a modest wedge between the two series. This may create uncertainty around the extent which the positive trend in household spending can be maintained.
- Bonus payments were down notably in y/y terms, off -10.5%y/y, versus a 6.3% gain in July, so this provides some offset to the softer headline results. We can often bounce back after negative months.
- On a same sample base, cash earnings printed at 1.9%, versus 2.7% forecast. Scheduled full time pay on the base y/y was 2.4% against a 2.5% forecast. Special payments fell -5.7%y/y (against a 4.7% rise in July).
- This may help offset the weaker than expected headline outcomes, but still the BoJ and authorities are likely to want to see stronger underlying earnings momentum.
Fig 1: Real Earnings Struggling For Positive Momentum
Source: Bloomberg Finance L.P./MNI
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GOLD: Gold Reaches New High After Disappointing US Payrolls
Gold prices jumped on Friday following disappointing August US labour market data. They reached a new record high of $3600.16 and finished up 1.2% to $3586.69/oz to be 4% higher on the week. Bullion rose to $3596.51 early in Monday’s trading and is now around $3593.5. It continues to find support from rate cut expectations and the market now has over 25bp priced in for September. The US dollar fell (BBDXY -0.4%) and yields were substantially lower.
- Gold remains in a clear bull cycle after it reached a new record high and breached resistance at $3500.1 last week. Initial resistance is at $3578.5, 3 September high, and support at $3470.3, 2 September low.
- US jobs rose 22k in August, less than expected, with both the unemployment and underutilisation rates rising.
- Gold has now been officially excluded from US tariffs.
- China’s demand for gold remains robust with the PBoC buying in August for the 10th consecutive month.
- Silver underperformed gold last week rising 3.2%. It was up 0.8% to $41.004 on Friday after a high of $41.417 following the US payroll data. It has started today around $40.90. The metal remains in a bullish trend with initial resistance at $41.467. The 20-day EMA is at $39.190.
- Equities sold off with the S&P down 0.3% and Euro stoxx -0.5% but the S&P e-mini has started today up 0.2%. Oil prices fell sharply with WTI -2.4% to $61.97/bbl. Copper was down 0.3%.
MNI: MNI JAPAN Q2 GDP REV 0.5% Q/Q; PRELIM 0.3%; MEDIAN 0.3%
- MNI JAPAN Q2 GDP REV 0.5% Q/Q; PRELIM 0.3%; MEDIAN 0.3%
- JAPAN Q1 ANNUALIZED GDP REV 2.2%; PRELIM 1.0%; MEDIAN 1.2%
JGBS: Bullish JGB Backdrop May Be Challenged By Political Concerns
JGB futures finished up at 138.22, +.26 versus settlement levels post the Tokyo close on Friday. Highs were at 138.37, levels last seen at in the first half of August.
- The global impetus from bond futures is higher, with US Tsy futures breaking higher on Friday following the weaker than expected US NFP report (which strengthened the viewpoint that the US labour market is softening).
- Still, early Monday focus will be on Japan politics, post PM Ishiba's decision to step down as leader. This injects fresh political uncertainty into Japan's broader economic outlook. Focus will now turn to the LDP leadership race. When Ishiba secured the PM position last Oct, the runner up was Sanae Takaichi. Via ABC news: "A Nikkei survey held at the end of August put Ms Takaichi as the most "fitting" successor to Ishiba."
- Takaichi could arguably generate the most significant market reaction if she is successful becoming the new PM, as she has been outspoken in terms of being more dovish in terms of the BoJ outlook and looking to boost fiscal spending.
- In the cash JGB space, the 10yr bond yield ended last week at 1.58%, while the 30yr yield was just under 3.25%. The JGB 2/30s curve was at +241bps. Swap rates are higher in early dealings, the 10yr to 1.38%, up 1.75bps.
- On the data front we have Q2 GDP revisions due soon. Market forecasts are for no change in the headline outcomes. Growth was initially reported at +0.3%q/q.
