Did you know that Japan's economy is the third-largest in the world, yet it heavily relies on a weak yen to maintain competitive export prices?

Currency strength is a double-edged sword; a strong yen can hurt exports but benefit consumers with cheaper imports.

Today, we’ll talking about these topics:

• The Economy Is Doing Fine – Stop Sweating the Blips: First, despite some recent market jitters over economic data, the U.S. economy remains resilient 😌

• Jackson Hole Is Coming Up: Next, the upcoming Jackson Hole Monetary Policy Symposium will be pivotal 📅

• A Rising Yen Hurts Most Japanese Stocks: Finally, Japan’s stock market is feeling the pressure as the yen rises against the dollar 

Stay tuned as we break down these important topics and give you insights that can help you pave the way through the financial markets with confidence. Let’s go!

The Economy Is Doing Fine – Stop Sweating The Blips 😌

The economy is cooling—but that is different from crashing.

Much has been made of data releases in recent weeks.

Indicators that rarely get market reactions have been generating outsized moves.

A weaker-than-expected ISM manufacturing survey on August 1 led the S&P 500 index sharply down, for example, while a stronger ISM Services reading stanched some of the bleeding on August 5.

Even gross-domestic-product estimates from the Atlanta and Dallas Federal Reserve Banks have been grabbing investors’ attention.

What about important data, like the labor market? 📊

A weaker-than-expected payrolls report on August 2 convinced the market that a recession was already in the offing.

The unemployment rate rose from 4.1% to 4.3%, triggering the so-called Sahm Rule, a recession indicator based on three-month averages for unemployment.

Economist Claudia Sahm, for whom the rule is named, took to X to note that “there is good reason to view the current rise in the unemployment rate as overstating the recessionary dynamics, at least somewhat.”

But even that couldn’t calm the market 😱

Those fears are long gone after initial jobless claims fell to their lowest level since early July and retail sales climbed 1% in July, the largest increase since early 2023.

Since 2022, the U.S. economy has weathered repeated predictions of recession.

But the U.S. economy is doing just fine.

The bottom line:

Not every minor data blip signals that a full-blown crisis is under way 😨

Even if the economy is only lukewarm, that’s not too bad.

There are a few cracks and some definite causes for concern, but some good old Fed rate cuts starting in September may well be enough to bandage them up this year.

Jackson Hole Is Coming Up 📅

The most consequential event this fall won’t be the US election, a war in the Middle East, or even baseball’s World Series.

For most Americans, it will be the first reduction in U.S. interest rates in more than four years 🤑

An expected rate cut by the Federal Reserve in mid-September won’t change the price of eggs or businesses’ hiring plans overnight, but it will signal the start of the next phase of the monetary-policy cycle, with important consequences for the economy, financial markets, and consumers.

If Fed Chair Jerome Powell and his colleagues thread the needle just right, the central bank could execute a fabled soft landing that would keep the economy growing at a just-right rate without the threat of recession or pronounced inflation.

There is a decent chance, this time, that the Fed will succeed ✔️

Powell’s keynote address on August 23 at the Fed’s annual Jackson Hole Monetary Policy Symposium will lay the groundwork for the coming shift in rates, spurred by the deceleration of inflation in the past two years toward the central bank’s 2% annual target and policymakers’ desire to get ahead of a softening labor market.

Expect Powell to reiterate that the Fed’s decisions are data-dependent, while confirming Fed officials’ dovish stance.

He will signal Fed cuts are on the way, but he’s unlikely to be very reluctant to provide more guidance than that.

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A Rising Yen Hurts Most Japanese Stocks 💴

The iShares MSCI exchange-traded-fund has dropped 4% since July 11, when a soft U.S. inflation report fueled expectations for Federal Reserve interest-rate cuts.

The yen has jumped 8% against the dollar.

That’s no coincidence 🤷

Japan’s share index is dominated by global manufacturing titans like Toyota, Sony, and Hitachi, whose bottom lines swell when overseas earnings translate back to a weaker yen.

On average, listed companies earn 60% of their profit outside Japan.

The key to the Japanese stock market is a weaker Yen.

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