May 29, 2007 / 12:57 AM / 13 years ago

UPDATE 2-Japan jobless rate hits 9-yr low, spending strong

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By Hideyuki Sano

TOKYO, May 29 (Reuters) - Japan’s jobless rate fell unexpectedly to a nine-year low in April and the availability of jobs also improved, signalling a tightening labour market and boosting the Bank of Japan’s case for an interest rate hike.

Separate data on Tuesday showed that household spending rose much more than expected, suggesting consumption held up well in April after robust growth in the January-March quarter, although retail sales shrank from a year ago.

Taken together, the data supported expectations that the Bank of Japan could raise interest rates as early as in the third quarter of this year, helping lift two-year Japanese government bond yields to a 10-year high.

“The Bank of Japan has been saying wages will rise as labour market conditions tighten,” said Yasuhiro Onakado, chief economist at Daiwa SB Investments. “So the data must have helped them to be more confident with that view.”

Japan’s seasonally adjusted jobless rate fell to 3.8 percent in April — below a market consensus forecast of 4.0 percent — after having stuck at 4 percent in the preceding five months.

“The jobless rate is getting close to levels that could spark concerns about rising wages,” said Junko Nishioka, economist at ABN Amro Securities.

While it is hard to pinpoint what level of joblessness would cause inflationary pressure through rising wages, many economists estimate it lies somewhere from 3.5 to 4.0 percent in Japan.

“The next focus is whether we are reaching that turning point in wages,” Nishioka added.

Wages have been subdued so far despite the country’s economic recovery in the past five years. But the Bank of Japan has said tight job markets should eventually lead to rising wages and a build-up of inflationary pressure.

RISING INFLATION?

The fall in the jobless rate underscored market expectations that the BOJ will raise rates some time after the upper house election in July.

The yield on two-year Japanese government bonds JP2YTN=JBTC, the most sensitive to rate-move speculation, rose to a 10-year high of 0.955 percent after the data.

The interest rates derivatives market is now pricing in around a 75 percent chance of a rate hike by August.

Economics Minister Hiroko Ota also welcomed the job data. “The breakdown shows the number of employed and salaried employees rose while the number of unemployed fell, which is a good sign,” she said.

The jobs-to-applicants ratio also unexpectedly improved to 1.05 in April — meaning 105 jobs were available for every 100 applicants — compared with 1.03 in March. Economists had expected it to stay flat at 1.03.

Although the ratio had been sliding after hitting a 14-year peak of 1.09 in July, economists said the decline was due to a government crackdown on unlawful hiring, adding that many companies felt labour was in short supply.

But some economists also said it was too early to conclude that the jobless rate would continue to fall in coming months.

“It could be due to a temporary rise in economic growth from last year to early this year and an upswing in household consumption in January-March,” Takahide Kiuchi, senior economist at Nomura Securities, said in a report.

He also said job data tends to be volatile in April, the first month of the Japanese business year.

Separately, household consumption data stayed firm.

Overall household spending rose 1.1 percent in April from a year earlier in price-adjusted real terms, against a median market forecast of a 0.2 percent increase.

Household consumption has been firmer than many economists had expected so far this year.

On the other hand, retail sales fell 0.6 percent in April from a year earlier, government data showed on Tuesday, lower than economists’ median forecast for a 0.4 percent fall.

Retail sales have been falling for the last seven months. (Additional reporting by Yoko Nishikawa)

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