※ [Global Morning Briefing] summarizes global news reported by Seoul Economic Daily.
Yen Jumps on Japan Rate Hike Bets and Pension Fund Buying Talk — Break Below 155 Could Fuel More Gains
The yen, which had kept weakening even after Washington and Tokyo coordinated on currency policy a month ago, climbed to its highest level for a second straight day, reaching the low 155 range against the dollar. Expectations gained ground that the Bank of Japan, responding to U.S. pressure, will raise its policy rate within the year, possibly as early as this month. Speculation that Japan's Government Pension Investment Fund (GPIF) will increase its allocation to yen assets also appears to have driven the currency higher. Investment banks say that if the yen strengthens past 155 per dollar, it will trigger additional selling of dollar positions in the market and accelerate the yen's advance.
The yen rose to as high as 155.3 per dollar during trading on the 4th, a one-month high, according to Japan's Nihon Keizai Shimbun. That marks a gain of more than 5 yen, or 3.2%, in two days from 160.39 per dollar on the 2nd.
The rally stems from Bank of Japan comments suggesting the size of rate increases could be larger than expected. Hajime Takata, a BOJ policy board member widely regarded as a hawk, said at a news conference on the 2nd, "There is no need to necessarily limit rate hikes to about once every six months or to fix the increase at 0.25 percentage point," referring to the possibility of a "big step," a move in which a central bank raises its policy rate by 0.50 percentage point at once. Nomura Securities said the BOJ could deliver three consecutive rate increases through December if the yen remains weak.
Signs that Japan's public pension fund will step up purchases of Japanese government bonds also contributed.
Some analysts say carry trade positions in the yen, built on interest rate differentials, have begun to unwind.
Strategists at JPMorgan Chase said that if the yen strengthens beyond 155 per dollar, a substantial unwinding of short positions could accelerate the currency's gains. JPMorgan estimates bearish yen positions total 16 trillion to 17 trillion yen.
U.S. August Payrolls Beat Forecasts — Will Fed September Hike Talk Return?
U.S. employment in August came in far above market expectations. With inflation pressure still elevated in the wake of the war in Iran, the data is being read as a signal that the labor market has not cooled significantly, prompting forecasts that expectations for a Federal Reserve rate increase in September could regain momentum.
The U.S. Bureau of Labor Statistics said nonfarm payrolls rose by 162,000 from the previous month in August. That far exceeded the 55,000 gain forecast by economists surveyed by Bloomberg, and marked a sharp pickup from the 21,000 increase in July.
The unemployment rate was 4.1%, unchanged from a month earlier.
With the jobs data coming in stronger than expected, markets appear to be raising the odds of a Fed rate increase in September once again.
"Given that this payroll gain was larger than expected and prior figures were revised upward, it will be hard for the market to price in no chance at all of a September rate hike," said Ira Jersey, a strategist at Bloomberg Intelligence.
Fed Officials Turn Dovish — Waller Says 2.8% Inflation Is Acceptable
Federal Reserve Governor Christopher Waller, who holds a permanent vote on U.S. policy rate decisions, said on the 3rd that "signs of disinflation are finally emerging" and that he would support holding rates steady if data over the next two weeks confirms the trend. The remarks follow a cautious stance on rate increases from New York Federal Reserve Bank President John Williams, regarded as the Fed's effective second-in-command.
Speaking at an event hosted by Reuters, Waller acknowledged that inflation remains considerably above the Fed's 2% target but said progress has been "slow but steady." Disinflation refers to a situation in which prices are still rising but at a decelerating pace.
Waller emphasized that the three-month average core inflation rate excluding food and energy stands at 3.05%, which does not meet the Fed's 2% target but has fallen steadily from 4.76% as of February. He said a three-month core inflation rate of 2.8% would be an acceptable level.
With the case for a Fed hold gaining strength, markets see room for the U.S.-Japan interest rate gap to narrow.
"I Chanted Mantras to Hold On" — Two Nepali Workers Rescued From Power Plant Tunnel
Two employees trapped in a hydroelectric power plant tunnel during Nepal's massive floods were dramatically rescued nine days after they went missing. Attention is also turning to the prospects for rescuing dozens more believed to be stranded in tunnels at several power plants.
Nepali rescue teams found and rescued two Nepali employees while searching a tunnel at the Trishuli 3A hydroelectric plant in Bagmati Province in the north-central part of the country, according to Reuters and other outlets on the 4th.
The first worker rescued was identified as Sanjay Sah, the plant's mechanical foreman. The second survivor is Kabir Maharjan, a mechanical supervisor.
Describing the ordeal shortly after being pulled out, Sah said, "I was working in the control room. My responsibility was to save everyone's life," adding, "I was trying to evacuate the others and could not get out myself." Sah said he endured by chanting Hindu mantras inside the tunnel until he was rescued, and that "only three or four people nearby were able to communicate by speaking or making sounds." Amir Maharjan, Kabir Maharjan's older brother, told the Associated Press, "I am just thankful to God."
Volkswagen Union Accepts 50,000 Job Cuts, Half of Model Lineup to Be Discontinued
The supervisory board of Germany's Volkswagen Group unanimously approved a sweeping restructuring plan known as the "Future Plan 2030" on the 3rd, centered on cutting about 50,000 jobs. The decision comes two months after reports in July of possible cuts of up to 100,000 jobs and the closure of four plants in Germany drew strong pushback from the union. The measures are seen as the most extensive restructuring in Volkswagen's 89-year history.
The supervisory board said production capacity in Europe exceeds demand by more than 500,000 vehicles and that securing production volumes for 2031 to 2034 would be difficult at four plants — Emden, Zwickau, Hanover and Neckarsulm. It said about half of the entire model lineup will be discontinued by 2035 and that the number of vehicle specifications and option combinations will be cut by roughly 75% over the same period to simplify production. The board also set financial targets of a 9% operating margin in 2030 and investment of 135 billion euros from next year through 2031.
