Economics Weekly: Global Jitters: US Shutdown and Japan LDP Vote
US/Japan: US government shutdown risk; Japan LDP election on 4 Oct. The US government has shut down as Republican and Democratic lawmakers remain at an impasse, blaming each other. Aside from delayin...
Chief Investment Office - Hong Kong3 Oct 2025
  • US/Japan: US government shutdown imperils jobs report, furloughs federal workers, sparks trimming fears; weak ADP employment data raised market expectations for Fed’s October rate cut; Japan’s LDP election on 4 Oct, with Koizumi currently leading
  • India: RBI kept policy rate unchanged while revising up FY26 GDP growth forecast and lowering inflation guidance; we include one additional 25 bps rate cut for rest of FY26
  • Indonesia: Trade surplus widened in August from import decline, despite export slowdown; September inflation quickened but is not a major concern for the central bank as their focus shifts to growth stability
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US/Japan: US government shutdown risk; Japan LDP election on 4 Oct. The US government has shut down as Republican and Democratic lawmakers remain at an impasse, blaming each other. Aside from delaying today’s critical US monthly jobs report, the shutdown is expected to furlough some 750,000 federal employees, according to estimates by the nonpartisan Congressional Budget Office. The gathering of military leadership in Quantico by US President Donald Trump and Defence Secretary Pete Hegseth just before the shutdown has drawn scrutiny, as has Trump’s warning that the shutdown could lead to massive job losses. Unlike previous shutdowns and the Democratic framing, Trump has not portrayed this one as solely a budget dispute. Speculation has emerged that the administration could use the shutdown as a pretext to permanently trim the federal workforce and align it with Trump’s priorities.

This week’s Automatic Data Processing (ADP) employment data, an alternative to nonfarm payrolls, signalled a sluggish labour market — sharply declining by 32,000 in September, (defying market consensus of a 51,000 gain) with the August figure revised to -3,000 from +54,000. Consequently, the futures market has priced in more than a 100% chance for a 25 bps cut at the FOMC meeting on 29 Oct.

Moreover, increased job insecurity appeared to have depressed the US Conference Board’s consumer confidence index to a five-month low of 94.2 in September, below expectations for a moderation to 96 from 97.8 in August. The labour market differential — a proxy for unemployment rate, measuring the difference between US consumers who think jobs are plentiful and those who are finding it hard to get a job — fell sharply to 7.8% in September from 11.1% in August.

Turning to Japan, the Liberal Democratic Party leadership election is scheduled for 4 Oct. Recent polls suggest that Shinjiro Koizumi has gained momentum against Sanae Takaichi. Markets view a Koizumi win as JPY-positive because he is seen as more pragmatic on fiscal policy and supportive of closer coordination with the Bank of Japan (BOJ) in normalising monetary policy. In contrast, Takaichi is associated with an expansionary growth agenda fuelled by more aggressive fiscal spending and resistance to rate hikes.

On 4 Oct, the candidate who secures a simple majority out of the total 590 votes will win. If no candidate achieves this, the top two vote-getters will proceed to a runoff, which will give more influence to lawmakers (among whom Koizumi holds an advantage). LDP Diet members account for 295 out of the 342 votes in the second round. Following the election, the LDP will convene an extraordinary Diet session on 15 Oct to elect the new prime minister.


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