JAPAN DATA: HH Spend Well Below Forecasts, Divergence With Labor Earnings Widens

Q2 job growth was stronger than expected rising 0.5% q/q to be up 1.2% y/y. However, with a 0.3pp increase in the participation rate to 70.7%, the rise in employment wasn’t enough to stop the unemployment rate rising. Q1 was revised up to 5.4% and Q2 rose to 5.6%, the highest since Q3 2015. This signals ongoing excess capacity in the labour market, which is helping to contain wage pressures and possibly give the RBNZ space not to hike at every meeting. 

• Statistics NZ reported other indicators in line with labour market excess capacity. Underutilisation rose to 13.8% from 12.9% in Q1.  It was 9.1% in Q1 2023. Youth trends can be lead indicators and the 15-24yr old rate rose 3.4pp to 37% over the year to Q2 with 25-34yrs up 1.9pp to 11.6%.
• The number of unemployed rose 4.3% q/q to be up 8.2% y/y, the highest in a year. Statistics NZ also pointed out that long-term unemployed was higher than a year ago.

NZ unemployment rate %

Source: MNI - Market News/LSEG

• On a positive note, the economy is creating jobs again posting the fastest annual rate since Q4 2023. It has now risen for three straight quarters. It also appears that job growth is in both full-time and part-time with annual growth at 1.0% (Q1 0.7%) compared with 1.5% (Q1 -0.2%) respectively.
• Hours worked fell 0.1% q/q fell but were still up 2.8% y/y.

Spot USD/CNH tracks near 6.7470/75 in early Wednesday dealings. CNH rose 0.15% for Tuesday's session, as broader USD sentiment slipped on the oil price slump and surging equities. US officials raised hopes of a Iran deal around re-opening Hormuz, although the BBDXY index was only 0.06% lower for the session despite the sharp energy/equity swings. For USD/CNH Tuesday highs were at 6.7599, while remaining sub all key EMAs, with the 50-day resistance point at 6.7815. Recent lows rest at 6.7423 from the end of July. Spot USD/CNY finished up Tuesday trade at 6.7492, while the CNY basket index was little changed, last 101.97, but this follows falls in the previous four sessions (as the yuan lagged USD softness to a degree, particularly versus the yen).

• Yesterday's USD/CNY fix edged a little higher, but has been relatively stable near 6.7900 for the past week, despite the yen induced slump in the BBDXY index. Still, this follows a strong period of CNY fixing outperformance relative to BBDXY index trends. The steadier fixing trend of late may leave USD/CNH downside as a low beta one. Implied vols suggest markets aren't expecting any dramatic shifts with the 1mth now under 2%.
• Locally today we have the RatingDog July PMI for services, which is projected at 53.7, versus 54.1 prior. The July round of PMIs, both official and private sector, have softened relative to June reads. The Citi China surprise index is back trending lower, last -35.00. Weaker growth momentum for China since Q2 hasn't impacted yuan sentiment. The fixing trend will be eyed for any meaningful push back, particularly if we see further broad USD downside.
• We get more updates on the growth picture on Friday with July trade data, with exports having been a source of strength so far in 2026. The strength of the trade surplus has also featured in strong valuation arguments for the yuan. 

In post-Tokyo trade, JGB futures closed stronger, +20 compared to settlement levels, after US tsys finished 5-6bps richer on Tuesday on US/Iran deal optimism that permeated the session with brief pullbacks on reality checks and policy.

• US tsys rallied after Bloomberg reported earlier that Qatar says language has been drafted on a possible US-Iran deal, while weaker crude prices provided ongoing support for US tsys throughout the session. Brief pause after Qatar admitted nothing was in the books when it comes to US-Iran direct talks.
• "U.S. Treasury Secretary Scott Bessent said he was sure Bank of Japan Governor Kazuo Ueda will "do what is best" for the country's economy, public broadcaster NHK reported on Wednesday. "I do believe that part of the inflation uptick in Japan was a result of the weak yen and also the energy prices," Bessent told NHK in an interview.” - RTRS
• "Bessent had said he would meet Ueda at a U.S.-hosted G20 finance leaders' meeting at the end of August, which would precede the BOJ's September policy meeting."
• Today, the local calendar will see Labor Cash Earnings and S&P Global PMI Composite & Services (F), alongside BOJ Minutes of June Meeting.

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