Political Troubles in Japan and France, But Also Worrying Signs in the U.S. Labor Market – Currency Thoughts
Political Troubles in Japan and France, But Also Worrying Signs in the U.S. Labor Market
September 8, 2025
(175) A changing of the guard is afoot in intergovernmental political and economic policymaking. The America First foreign policy of the Trump Administration has intensified efforts by BRIC countries such as Russia, India and China in particular to coordinate their actions in resistance to the changing U.S. posture. Soon after fixed dollar exchange rates ended in 1973, major western governments formed the Group of Seven (led by the U.S. and also including Japan, Canada, Germany, France, Britain and Italy) to identify shared interests, share important information and coordinate actions that help achieve their shared goals. Shortly after the launching of the common European currency euro at the start of 1999, the Group of Twenty came into being, which was an effort to bring large but less developed economies into a wider tent with the Group of Seven. But the forces pushing America and the other G-7 countries toward more splintered ideologies are now counteracting the spirit that gave birth to the G-20. This Monday’s news headlines exemplify this break-up.
Speculation that Japanese Prime Minister Ishiba would soon resign proved correct. The talk emerged after the July upper house Japanese election. During trade negotiations with the United States, Ishiba attempted to quell the rumors, but in the wake of the now finished deal, the prime minister revealed his intent to leave office. A date for a new party leadership vote has not yet been determined. The LDP lacks a majority in both the more powerful lower parliamentary house and now the upper house, and far-right parties are rapidly gaining support in a population that is becoming less supportive of postwar Japanese foreign and economic policy norms. GDP growth has been very weak, and inflation above 3% is pinching the real disposable income of households.
Today around 17:00 GMT today (13:00 EDT) the result of a vote of no confidence in France’s National Assembly is expected to force out Prime Minister Bayrou, who has been in that job less than a year. France’s top politician would remain President Macron, but he must appoint a prime minister who can garner sufficient support within parliament to produce a functional legislature, and that will be difficult. Bayrou already was the fourth prime minister in two years. Macron has a rising disapproval level, and his current term ends in just over 1-1/2 years. This latest challenge to the government’s authority comes at an inconvenient time when Macron has been trying to build European unity over standing up to a more aggressive Russia, but with economic policies and France’s economic performance eliciting mounting popular dissatisfaction.
Separated by 6000 miles, Paris and Tokyo represent two-sevenths of the Group of Seven and are poised to suffer political shocks on back-to-back days. Europe’s largest country and another pillar of the G-7, Germany is also experiencing rising support for far-right populist politics that could stall efforts to contain Russia that will require a solidified effort amid fading confidence in the United States as a reliable and trustworthy ally.
All this is happening at a time of mounting concern about the health of the U.S. economy and its labor market in particular. significantly weaker back-to-back monthly employment situation reports on August 4 and September 5 revealed that non-farm payroll jobs grew just 27k per month, well below the 75-100k estimated monthly increment believed necessary to absorb natural growth in working age labor market participants. It is feared that tomorrow’s preliminary benchmark updates of the job figures may point to a substantial further slowdown in recent employment growth.
With currency markets bracing also for U.S. producer price and consumer price data due Wednesday and Thursday, the dollar fell overnight by 0.7% against the kiwi, 0.5% versus the Aussie dollar, 0.4% relative to the Swiss franc, 0.2% against the Canadian dollar, and even 0.1% versus the euro. The effects of higher tariffs are expected to be more apparent in this round and immediately ensuing months of U.S. price figures, and that may persuade the FOMC majority to cut its interest rate only 25 basis points later this month.
Ten-year U.S. Treasury and British gilt yields edged up a basis point overnight, whereas the French, Italian, Spanish and Japanese sovereign debt yields dipped a basis point. Uncertainty gave Bitcoin’s price a boost of more than 4%, and gold set another record high of $3,662.5 per ounce earlier this day. The price of WTI oil has climbed 2.0%. OPEC+ announced further slight production hikes to take effect next month.
Significant stock market rises of 1.5% and 0.9% occurred today in Japan and Taiwan. European and U.S. equities are up to a lesser extent.
Japanese GDP growth last quarter was revised upward to a 2.2% annualized rate from the first quarter, and that was associated with a 1.7% year-on-year increase both in the quarter and for the first half of 2025. Personal consumption (+1.6%) and net exports were the main growth drivers in the quarter. The PCE price deflator was 3.0% above its year earlier level and posting a 3.3% on-year increase in the previous quarter.
Among other Japanese data releases, the current account’s surplus of JPY 2.684 trillion was 19% leaner than the July 2024 surplus, and the seasonally adjusted JPY 1.883 surplus was likewise 21% smaller than June’s result. A gauge of service sector workers confidence, the economy watchers index, improved to a 7-month high in June but stayed below 50 with a reading of 46.7.
German industrial production ended a three-month streak of contraction with a 1.3% increase in July. That rebound didn’t quite unwind the combined shrinkage in the second quarter and left the average May-July production level 0.1% below the prior three months’ mean. Germany’s seasonally adjusted trade surplus in July of EUR 14.7 billion was at a 9-month, reflecting a bigger monthly drop in exports than imports.
China’s trade surplus in August of $102.3 billion rose to a 2-month high and was 12% wider than the surplus in August 2024. In January-August, the surplus of $785.3 billion was $173 billion greater than a year earlier. Chinese international reserves climbed $29.9 billion in August to a 117-month high of $3.322 trillion.
The Sentix gauge of investor sentiment toward Euroland deteriorated to a 5-month low of -9.2 in September from -3.7 in August and +4.5 in July.
Lithuanian and Latvian consumer price data reported today sketch similar profiles. The CPI in Lithuania dipped 0.2% on month but rose to a 4-month high of 4.0% compared to a year earlier. Latvian consumer prices also dipped 0.2% on month and posted a 4.1% year-on-year increase. Inflation bottomed in Lithuania at zero percent in March 2024 and in Lativia at 0.1% in May 2024. Their prior cyclical peaks had been 24.1% in Lithuania in September 2022 and in Latvia at 22.2% also in September of 2022.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German industrial production and trade surplus, Japanese current account and Chinese trade balance, prime ministers of Japan and France
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