The jump in the unemployment rate in July is a lagged response to the weakness in economic activity around the turn of the year. Given that the July industrial production and retail sales data are pointing to another decent rise in Q3 GDP, the labour market should tighten again before long. And with the Tokyo CPI suggesting that underlying inflation is levelling off around the Bank of Japan’s 2% target, our conviction that the Bank will press ahead with another rate hike is growing.
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