Japan jobless rate hits 16-year low, signals spending rebound ahead

TOKYO Fri Jun 27, 2014 1:35am EDT

A man using a mobile phone walks down a corridor of a building at a business district in Tokyo June 26, 2014. REUTERS/Yuya Shino

A man using a mobile phone walks down a corridor of a building at a business district in Tokyo June 26, 2014.

Credit: Reuters/Yuya Shino

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TOKYO (Reuters) - Japan's unemployment rate hit a 16-year low in May, suggesting the economy will rebound in the third quarter from a sales tax hike and consequent slump in consumer spending.

The jobless rate in the world's third-largest economy fell to 3.5 percent, the lowest since 1997 and a level the Bank of Japan says is near full employment.

At the same time, the availability of jobs rose to its highest level since 1992, good news for Prime Minister Shinzo Abe as he tries to cement a recovery after two decades of stagnation.

The strong employment numbers were published alongside other data on Friday showing Japan's household spending fell 8 percent in the year to May, four times the drop projected in a median market forecast and more than the 4.6 percent decline in April.

The tumble was due mainly to a pull-back in spending on housing, cars and household appliances - all of which saw a surge in demand before the sales tax hike on April 1.

"An (economic) contraction in the second quarter is a certainty, but the job market improvements are positive for the economy," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

The data is unlikely to change dominant market expectations that the BOJ will hold off on further monetary stimulus probably for the rest of this year, analysts say.

"The decline in household spending is too large to ignore, but if you exclude auto sales there are signs that spending is bottoming out," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

Households spent more on items such as television sets, personal computers and clothing in May. Spending on eating out also stopped falling.

Separate data showed core consumer inflation eased slightly in May when excluding the effect of the tax hike, in line with the BOJ's projections that price gains will slow in coming months before accelerating again late this year.

The BOJ has signaled that it sees no immediate need to expand its massive stimulus program deployed in April last year, stressing that the cooling effect on consumption from the sales tax hike will be temporary.

The central bank has also said Japan is on track to meet its the 2 percent inflation target sometime next year, although it projects consumer inflation to hover just above 1 percent for several months as the boost from a weak yen fades.

The BOJ estimates that the sales tax rise to 8 percent from 5 percent would add 1.7 percentage points to Japan's annual consumer inflation in April and 2.0 points from May onwards.

"As the BOJ projects, consumer inflation will probably slow in coming months but won't slip below 1 percent," Dai-ichi Life Research's Shinke said. "I don't see any reason for the BOJ to ease further for the rest of this year."

NO EASING EYED

Analysts expect the economy to contract in the second quarter due to the tax hike, with a Reuters poll conducted in June projecting a 1.2 percent quarterly drop.

The contraction could be more severe given the weak spending data, although the strong job market and an expected increase in summer bonus payments will underpin spending.

"It may take a little longer for spending to recover, but there's no need to turn pessimistic on the economy," said Miyazaki of Mitsubishi UFJ.

The nationwide core consumer price index (CPI), which includes oil products but excludes the volatile prices of fresh food, rose 3.4 percent in the year to May, data showed on Friday, matching the median market forecast.

That was the fastest since April 1982 as the tax hike pushed up prices across the board.

Excluding the sales tax hike, core consumer inflation stood at 1.4 percent, a tad slower than the 1.5 percent annual increase in the previous month, mainly due to the fading effects of the weak yen and a rise last year in electricity bills.

(Additional reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam and Eric Meijer)

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Comments (4)
nose2066 wrote:
Japan has had a very low birthrate for many years (the population of Japan will decrease). Is the low unemployment rate simply due to having fewer young people to fill the jobs left vacant by the older people who retire???

Jun 27, 2014 1:48am EDT  --  Report as abuse
kenezen wrote:
It would be wise for traders and especially consumers to pay attention to the Yen’s probable increase in value!
The US Dollar contract Which if averaged over the years is at a number assignment of 85 to 90. Today it hovers at 80. This reflects comparative value of the dollar as compared to primarily the Yen and the Euro. As we know the Euro has been weak as has the Yen.

Now, however, we have news of the Yens probable recovery and even the Euro may be showing some possible strength. If this continues we may see weakening in our currency.

As every American knows, at this point, Items of necessity (Food & Fuel)prices not counted in “Core Inflation” figures are soaring!! Our Federal Reserve constructs these measurement differently than almost every other advanced nations methodology. WHY? Is it to be unfair or just frightened?

Jun 27, 2014 10:16am EDT  --  Report as abuse
nose2066: Yes, you are correct. The low unemployment rate is due
entirely to the ever shrinking population in Japan and the large
number of baby boomers who have retired. The domestic economy is
continuing to decrease in size so a mixed blessing not to have a
very large population.

Jun 28, 2014 2:41am EDT  --  Report as abuse
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