Last Friday, disappointing US non-farm payroll data triggered a sharp drop in US stocks, a surge in the Japanese yen against the US dollar, and on Monday, the Japanese stock market followed suit with the Nikkei 225 index opening down by 3%. At the same time, data released on Monday showed that Japan's second-quarter seasonally adjusted real GDP was revised to 0.7%, lower than the expected 0.8%; the annualized rate was revised down to 2.9% from the expected 3.2%. Against this backdrop, iron ore prices fell to a 22-month low on Monday, dropping below the $90 per ton mark.
Since the beginning of this year, iron ore futures prices have fallen by more than one-third, dropping by nearly 10% just last week. However, steel purchases typically rebound after the summer, which could provide producers with some breathing room if this scenario occurs.
Last week, disappointing US employment data raised concerns about the health of the world's largest economy, pushing up the yen and thereby dampening the profit outlook for exporters. US data released last Friday showed that non-farm payrolls in August were lower than expected, with the data for the previous two months being revised downward. Meanwhile, due to the Bank of Japan's rate hike in July and market expectations of the Fed cutting borrowing costs to support the US economy, the yen has been rising, with the current USD/JPY exchange rate at 142.59, near a one-month high.
In early August, the Japanese stock market entered a bear market, with the TOPIX and Nikkei indices experiencing their largest declines since 1987, due to rising interest rates and concerns about the US economy leading to a surge in the yen. Although the benchmark TOPIX index has rebounded since then, it is still around 11% lower than the historical high set in July.
Shoji Hirakawa, Chief Global Strategist at Tokai Tokyo Research Institute, said, &#34;Global investors may be avoiding risks and cashing out.&#34; He added that investors may have decided that concerns about the US economy and the possibility of a significant rate cut cannot be ignored in light of the employment report.
<h2>Downward Revision of Japan's GDP Does Not Change Rate Hike Prospects, Yen Still Strong</h2>
It has been learned that the expansion rate of Japan's economy in the second quarter was slightly lower than the Japanese government's initial estimate, but this does not prevent the Bank of Japan from raising rates later this year. The Japanese Cabinet Office stated on Monday that Japan's second-quarter seasonally adjusted real GDP was revised down to 2.9% from the initial 3.1%, with an expectation of 3.2%
Private consumption and capital investment GDP have been slightly revised downward. After adjusting for non-inflation, Japan's nominal GDP in the second quarter increased by 1.8% compared to the previous quarter, confirming once again that Japan's economic total value has exceeded 60 trillion yen (equivalent to $4.2 trillion) for the first time in history.
Although the downward revision of two components of domestic demand in Japan may cause some concerns, the results generally support the views of Bank of Japan Governor Haruhiko Kuroda that the economy will continue to gradually recover. While almost no economists expect the Bank of Japan to adjust its benchmark interest rate at the policy board meeting later this month, many Bank of Japan watchers expect the central bank to adjust rates before January next year. Data released on Monday confirmed that consumer spending increased by 0.9% compared to the previous quarter, showing signs of recovery after four consecutive quarters of decline ending in March.
Norinchukin Research Institute's Chief Economist Takeshi Minami stated that the revised data is basically within the margin of error and will not change the overall view of Japan's economy being in recovery in the previous quarter. Minami said, &#34;Today's data will not truly impact the Bank of Japan's policy stance. Considering the unstable financial markets, they are unlikely to raise rates this month, but they have clearly indicated that they are considering raising rates, so I think there is a possibility of another rate hike this year.&#34;
Nevertheless, some economists are skeptical about the resilience of consumer demand as Japanese households are facing sustained inflation for the first time in a generation. The key indicator of consumer inflation has remained at or above the Bank of Japan's 2% target for 28 consecutive months, with expectations that this trend will continue in August. While real wages have finally stopped declining after more than two years, consumer spending remains below pre-pandemic levels.
Bloomberg economist Taro Kimura stated, &#34;Even with the GDP revision, Japan's economic growth remains well above potential levels, with the Bank of Japan estimating a potential growth rate of 0.6%. With inflation heating up and wages growing strongly, we maintain our baseline forecast that the Bank of Japan will raise rates again at the October meeting.&#34;
After a contraction in GDP in the first quarter of this year, economists widely expect a rebound in the Japanese economy. A major earthquake in northwest Tokyo on January 1st affected Japanese manufacturing. Additionally, a safety certification scandal forced some companies to temporarily halt production lines, leading to interruptions in car production.
Concerns about the cost of living and consumer demand will be central to the politicians vying for the next Prime Minister of Japan. The ruling Liberal Democratic Party's leadership election on September 27th is almost certain to determine the successor to current Prime Minister Fumio Kishida, as the party holds a dominant position in the parliament
The current Secretary-General of the Liberal Democratic Party, Toshimitsu Motegi, stated last week that if he wins the election, he will formulate an economic package plan. Toshimitsu Motegi is one of the several candidates running for the Liberal Democratic Party.
According to a survey last month, economists expect the Japanese economy to continue expanding this quarter, with an annualized growth rate of 1.7%; this growth rate will be significantly higher than the upper limit of the potential growth rate range of 1% as estimated by the Bank of Japan. This indicates that economists anticipate persistent inflationary pressures, as the Bank of Japan has kept its policy rate at the lowest level among major central banks, despite having raised it twice earlier this year.
The Bank of Japan is set to conclude its next policy meeting on September 20 and announce the latest interest rate decision. The focus of the meeting may be on the prospect of another rate hike in October or December, following the previous hike in July to 0.25%

The Japanese stock market fell by 3% on Monday, affected by weak US non-farm data. The GDP for the second quarter was revised to 0.7%, lower than expected, with an annualized quarterly rate dropping to 2.9%. The yen to dollar exchange rate rose to 142.59, further appreciating and pressuring exporters' profits. Despite the GDP downgrade, analysts believe that the possibility of the Bank of Japan raising interest rates remains high, leading to increased risk aversion among global investors and continued pressure on the stock market

- Last Friday, disappointing US non-farm data led to a major drop in US stocks and a surge in the yen against the dollar. Japan's stock market followed suit on Monday, with the Nikkei 225 index opening down by 3%. Additionally, Japan's revised Q2 GDP fell below expectations, impacting iron ore prices, which hit a 22-month low on Monday.
- Concerns over the US economy's health, triggered by underwhelming US employment data, have boosted the yen and dampened exporters' profit outlooks. Despite Japan's GDP downgrade, the momentum for a rate hike remains, with signs of economic recovery continuing, especially in consumer spending showing signs of revival.
- Economists anticipate Japan's economy to rebound after a first-quarter contraction, with inflation concerns persisting and expectations of another rate hike by the Bank of Japan in October. The upcoming ruling party leadership election in September is crucial for shaping economic policies, with candidates focusing on addressing cost of living and consumer demand worries.

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Pro Ultrshrt Yen

Japanese stocks welcome another "Black Monday"! Japan's second-quarter GDP slightly revised downward, difficult to change the outlook for the appreciation of the Japanese yen. The Nikkei 225 index plunged by 3%