QCP: Yen Appreciation, Strong Employment and Energy Shocks Intertwine, Posing Tests to the Fed’s Policy Path This Year

QCP released its September 10 macro theme report, noting the yen has recently rallied sharply from near 160 to around 154, driven primarily by the Bank of Japan’s monetary policy normalization, carry trade unwinding, and a weaker U.S. dollar. Japan’s August foreign exchange reserves fell by $87.8 billion, with securities holdings declining by the same amount—likely tied to yen intervention funding arrangements, leaving the market on guard for further intervention risks. On inflation, QCP attributes this spring’s PCE inflation surge mainly to energy prices. From February to May, non-durable goods contributed roughly 0.85 percentage points to core PCE year-over-year growth, while energy alone accounted for about 0.89 percentage points; by July, energy’s contribution had dropped to 0.48 percentage points. Still, core PCE remains at 3.3%, meaning falling energy prices have not fully eased the Federal Reserve’s concerns over broad inflationary pressures. The labor market retains resilience: U.S. August non-farm payrolls added 162,000 jobs, far outpacing market expectations, with a combined downward revision of 55,000 jobs for June and July; the three-month average monthly job gain stands at around 71,000. QCP holds that the labor market has not shown clear signs of stalling, supporting the "soft landing" narrative, though household financing costs stay elevated. Meanwhile, shipping disruptions in the Strait of Hormuz leave the U.S. Strategic Petroleum Reserve (SPR) at just ~286.6 million barrels, near historical lows, meaning inflation risks from energy supply shocks remain persistent. Brent crude has recently rebounded above $100 per barrel. QCP poses a key question: If employment continues to hold resilient and inflation is driven mainly by energy, can the Federal Reserve keep policy rates on hold for the rest of the year? Should core inflation stay stubborn, expectations of policy tightening could heat up again.