Japan’s unemployment rate falls to a near-2-year low as regular employment jumps in March
Japan’s latest labour market report exceeded expectations, with the unemployment rate falling for the second successive month in March, by 0.1ppt to 2.6%, the lowest since April 2020. Admittedly this still remained 0.4ppt (some 240k) higher than the pre-pandemic low in December 2019. The improvement last month was led by a jump in the number of regular employees, by 220k, to leave them some 690k higher than the pre-pandemic level. But while there was a modest increase in non-regular employees in March (5k), they still remained some 810k lower than in February 2020.

Of course, demand for non-regular employment seems highly likely to increase this month following the relaxation of pandemic restrictions in the second half of March. Indeed, there was already a notable increase in new job openings for casual/seasonal workers in the retail and postal and transport sectors in March. Overall, total new job openings were up by 4.4%M/M, to leave the active job openings-to-applicants ratio up 0.1pt to 1.22, the highest since April 2020, suggesting the potential for the labour market to tighten further over the near term. To what extent this will feed through to higher wages, however, remains to be seen.

Certainly, the latest wage figures (for February) remained subdued, with headline growth of 1.1%Y/Y leaving real wage growth at 0.0%Y/Y. And although the latest Rengo union Spring wage negotiations are on track for a larger increase in total wage growth this year (2.11%Y/Y vs 1.83%Y/Y in 2021), the average increase in base pay for workers under the Rengo umbrella still remained very subdued (0.62%Y/Y) and insufficient to provide a persistent upwards inflationary impulse required for the BoJ to meet its 2% target. Certainly, the BoJ’s estimate of underlying inflationary pressures, published today, showed only a modest increase in the trimmed mean CPI in March, by 0.1ppt to 1.1%Y/Y. While this was the highest since 2008, it remains considerably lower than equivalent measures in the US (5.9%Y/Y) and euro area (5.1%Y/Y).

UK public deficit more than halved in FY21/22; ample scope for government to offset impact of high inflation on households
Data released this morning revealed that UK public net borrowing excluding public sector banks (PSNB ex) in FY21/22 fell to £151.8bn (about 6.4% of GDP), down by more than half from the £317.6bn (14.8% of GDP) borrowed in the previous fiscal year and more than £80bn lower than originally predicted by the OBR during the height of the pandemic. Borrowing in March also came in a little below the Bloomberg survey consensus at £18.1bn. And the independent OBR expects final data eventually to revise down the estimate of borrowing over the fiscal year as a whole by some £24bn to £127.8bn.

The marked improvement in the state of the UK public finances in large part reflects the much stronger-than-expected rebound in tax revenues, with current receipts up more than £100bn to a record high. But while government debt interest payments rose more than £30bn due to the impact of high inflation on linkers, central government current expenditure fell more than £50bn from FY20/21. Overall, notwithstanding the government’s desire to maintain a war chest of funds for eventual pre-election tax cuts, there appears ample scope for the UK government – like many of its major EU counterparts – to provide additional financial support to households to offset the impact of higher prices of energy, food and other items, that are otherwise set to lead to the sharpest decline in UK real disposable incomes since at least the 1950s.

US durable goods orders, new home sales and consumer sentiment indices due for release
Turning to the US, a relatively busy day on the data front includes the release of the advance durable goods orders data for March. A rebound in commercial aircraft bookings could boost total orders last month, although the improvement is likely to be limited by the recent levelling off of order flows in other key industries. Overall, Daiwa America’s team expects orders growth of 0.8%M/M, reversing less than half the decline in February. Meanwhile, the latest new home sales numbers are likely to have been dampened by elevated prices and jump in mortgage rates, as well as the recent deterioration in consumer confidence. Indeed, Daiwa America expects the Conference Board’s latest consumer survey to report a further decline in the headline sentiment index to a fifteen-month low in April as elevated fuel and food prices continue to squeeze household budgets.