Economy in Brief

In this week's newsletter, we revisit some pivotal themes related to Japan. We begin by assessing the country's recent inflation trends, specifically highlighting the latest CPI figures from Tokyo and their potential impact on nationwide inflation and monetary policy. Next, we examine Japan's current macroeconomic landscape, acknowledging the slowdown in retail sales and industrial production, alongside a worsening outlook suggested by recent PMI readings. However, we also recognize the significant growth in corporate capital expenditure in Q4 and investigate the potential consequences of this unexpected positive development on Japan's Q4 GDP. We move on to analyze the ongoing rally in Japan's equity market, underscored by earnings growth and robust investment from foreign investors. Shifting gears, we delve into the recent performance of Japan's semiconductor industry, which has experienced a surge in production and exports, fueled by the global demand for AI chips. Finally, we explore Japan's long-term demographic challenges, focusing on workforce trends and the increase in foreign workers.

Tokyo inflation Markets have continued to scan data prints and official comments for cues ahead of the Bank of Japan’s (BoJ) upcoming monetary policy decision on March 19. Among the recent flurry of economic data was Tokyo’s core CPI, which jumped to 2.5% y/y in February, as base effects from Japan’s utility subsidy programme faded. The Japan government implemented support measures in early 2023 to help households tackle rising costs brought about by Russia’s invasion of Ukraine and a weakening yen. Among the measures include subsidies of about 20% on consumer electricity bills. Stripping away energy-related price effects, however, underlying inflation in Tokyo continued to cool, having moderated to 3.1% from 3.3%. As such, it remains to be seen if Tokyo’s latest inflation developments, if reflected in nationwide inflation numbers, are supportive of imminent BoJ policy tightening. Of possible concern is non-fresh food and non-energy inflation, which has remained on a downward trajectory since late 2023.

Canada's job market turned out 41,000 jobs in February compared to 37,000 in January and about 7,000 in December. Job creation has gradually stepped up. Sequential trends show the job growth has been quite stable in Canada with employment creation over three months averaging 28,000 per month, six-month gains average 31,000 per month, and over 12 months, gains are averaging 31,000 per month. Year-over-year employment has increased 1.8% in Canada.

Goods sector job creation has slowed and turned to contraction. Goods sector jobs have declined in February, and they've declined on balance over three months, six months and 12 months- this is an enduring feature of the Canadian economy right now. Despite goods sector weakness, service sector jobs in the Canadian economy are quite robust and healthy with the 12-month gain averaging 34,000 per month, a six-month gain of nearly 35,000 per month, and the three-month gain averaging 49,000 per month.

Looking at recent months, the percentage of categories showing jobs accelerating is at 52.6% in February compared to 63.2% in January and 57.9% in December. These statistics show that jobs are accelerating consistently in more sectors than they are decelerating. Looking at sequential data, jobs accelerate over 12 months in only 42% of the categories; over six months that statistic improves to 47% of categories, but still signals more categories seeing employment reductions than increases. However, over three months the percentage of sectors showing employment acceleration rises to 57.9%, a solid reading that shows substantially more acceleration and job creation than deceleration.

Over three months, eight of the categories in the table- out of 19 total including the headline in major sectors as separate observations- show declines. Over six months, seven of these categories show declines. Over 12 months, six categories show declines, with one category unchanged. These statistics underpin the notion that job declines are relatively rare across industries. However, that's not to deny that the goods sector has more chronic and special kind of weakness in progress that has been there for at least the last year. Persistent recurring goods sector job losses stated around November 2022- but average 12-month declines that are negative have been a feature for only two months in a row.

Canada's unemployment rate has fluctuated recently. It rose to 5.8% in February from 5.7% in January. January saw the unemployment rate fall to 5.7% from 5.8%. Over 12 months the unemployment rate in Canada averaged 5.5%; over six months it moved up to 5.7%; over three months it averages 5.8% which is where it sits in February. The consistent firm levels of job growth from 12-months to six-months to 3-months have not been sufficient to hold the unemployment rate at the 5.5% mark. However, over the last six months the unemployment rate has been relatively stable fluctuating between 5.7 and 5.8%. In this cycle, Canada's unemployment rate reached a low point at 4.8% in July 2022; however, it quickly rebounded the very next month to a rate of 5.2% and after that sunk to a low of 5% in January 2023. It did not revisit that 4.8% low point again. On data back to 1990, the unemployment rate of 4.8% is the low for Canada's unemployment rate. The current rate of 5.8% that has crept up, is still a rate that's in the lower 10-percentile of all unemployment rates on that same timeline back to 1990.