By: Dr. Mike Campbell
America is the world’s largest economy. The saying goes that “if America sneezes, the world catches a cold”. Certainly, economic events in the USA do have repercussions around the globe. The release of the latest set of job figures from America, serves to demonstrate this.
The weekly jobs data for 19 August 2010, released yesterday, showed a jump of 12000 initial jobless claimants (i.e. people losing their jobs and claiming unemployment benefits for the first time) to 500 000; this was worse than analysts expected.
The picture is not as bleak as these figures suggest because a lot of Americans found work last week since the economy is a dynamic thing. Nevertheless, unemployment is staying at about the 10% mark – and the rolling 4 week average suggests that it could be trending higher.
The news was enough to send markets in Asia lower; the Nikkei fell by 2% to close at 9179.4. The employment data put further pressure on the Dollar which is still trading close to a 15 year low against the Japanese Yen. This is increasing speculation that Japanese authorities will seek a mechanism to devalue their currency.
The Japanese economy is slowing down and is strongly dependent upon exports. America is Japan’s major trading partner and the two effects of declining US growth and a falling Dollar are likely to further damage Japan’s own prospects.
The government of Japan refused to be drawn on the nature of any moves designed to devalue the Yen, but did reveal that they are monitoring the situation closely and were talking to other G7 countries about the situation.
The rise in the value if the Yen was triggered by the global financial crisis since many businesses had taken advantage of very cheap Japanese Yen loans which they sought to repay as the recession gathered strength. The loans had to be redeemed in Yen which pushed its value higher. A further impetus to its value was provided by the Eurozone sovereign debt crisis.