Japan Has “Intervention Apprehension”

Last Edited by: LPL Research

Last Updated: April 17, 2024

Transcript

Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with a quick update on what's happening in the global markets and the call to action for investors. First, Japan has what I call "intervention apprehension". Japanese officials last intervened in currency markets in 2022, when they spent $60 billion to stop the depreciation of the yen, and you can see what that did in foreign exchange. So the question is, why haven't they intervened yet this time around? Well, it's because the yen volatility is quite low and swings in the currency relative to its peer group is just as important as exchange rate levels. Further, the relative weakness of the yen, well, it's pretty much in line with the rest of the G10 currencies. Investors should note that Japanese manufacturing sector makes up 30% of their economy, so a weaker yen should bolster exports at this time. Second, job churning is still a problem for businesses.

Jeffrey Roach:

Some key metrics right now explaining the churn in average annual wage growth for those who switch jobs versus those who stay in the same job. And as you can see, this gap is narrowing but still significant. The key takeaway here is wages grow fastest for job switchers. Companies who have robust business continuity planning can still thrive in an environment like this. This also explains some of the stickiness of inflation right now. Wage growth is strong, propelling consumer spending, despite the Fed's attempt to squash inflation. Third, crimped supply temporarily impacting inflation. We can decompose the drivers of inflation into various parts, what may be demand driven or supply driven. In recent periods, the economy was afflicted with inflation driven mostly by supply constraints, which is problematic for the Federal Reserve. The Fed was backed into a corner recently since their monetary policy tools are impotent to supply problems. At the start of this year, we saw the supply driven contribution to inflation increase again, and that may be one of the reasons the Fed is hesitant to begin cutting rates. Markets will be carefully watching inflation contributions going forward. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.

LPL Financial's Chief Economist Dr. Jeffrey Roach explains the dynamics behind the yen, the churn in the labor market, and why supply-driven inflation is dangerous.

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