The Daily Update - Japan's Pensions & Trade / NFP

The largest pension fund on the planet, Japan's Government Pension Investment Fund, reported earlier that it lost more than 9%, over USD138bn, in the last quarter of 2018. The drop in value was the biggest since April 2008. In 2014 the fund changed its strategy to add more stocks at the expense of domestic bonds, approximately 50% of the fund’s assets are now invested in foreign and domestic stocks. In the same period, the S&P 500 fell 14%, the biggest fall since September 2011 and the Topix fell 18%, the largest quarterly decline since 2008. Considering the unattractive returns offered from domestic bonds, it could be argued that a 9% drop is an acceptable level of volatility for a pension fund - so long as it does not happen again any time soon.

Staying with Japan, the UK just has 57 days before its scheduled departure from the European Union to participate in Economic Partnership Agreement (EPA) between the EU and Japan that comes into force today. Businesses and consumers across Europe and Japan will be able to take advantage of the largest open trade zone in the world. Once the agreement is fully implemented, Japan will have scrapped customs duties on 97% of goods imported from the EU and the deal is expected to increase trade between the EU and Japan by nearly EUR36bn annually.

Today’s January non-farm payroll release showed 304,000 jobs were added, which was above expectations of 165,000 jobs created, although the previous month’s figure was revised down to 222,000 from 312,000. The unemployment rate edged higher from 3.9% to 4.0%, as did the participation rate from 63.1% to 63.2%. Average hourly earnings was in line with expectations at 3.2% yoy: with an upwards revision of the previous release but a slight miss in the latest mom reading.

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