Japan Jobless Rate Rises to 4.1%, Highest Since 2006

By Toru Fujioka

July 29 (Bloomberg) -- Japan's unemployment rate rose to the highest in almost two years in June and household spending fell, adding to signs that the economy's longest postwar expansion may be coming to an end.

The jobless rate climbed to 4.1 percent, the statistics bureau said today in Tokyo. Economists estimated the rate would stay at 4 percent. Household spending declined 1.8 percent from a year earlier, the fourth monthly drop, the bureau said.

More women entered the labor market or sought higher paying jobs to supplement household incomes squeezed by the fastest inflation in a decade, the government said. Weakening consumer spending and exports probably caused the world's second-largest economy to contract last quarter.

``The labor market is gradually worsening,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. ``It's gotten past the point where policy makers can merely say the economy is stagnating.''

The yen traded at 107.35 per dollar at 11:48 a.m. in Tokyo from 107.44 before the reports were published. The Nikkei 225 Stock Average tumbled 2.2 percent and the yield on the benchmark 10-year bond fell 3.5 basis points to 1.53 percent.

``The labor market shows that the economy is at a standstill,'' Economic and Fiscal Policy Minister Hiroko Ota told reporters in Tokyo today. ``We need to be very cautious.''

The jobless rate was the highest since September 2006. The ratio of positions available to each applicant slipped to 0.91, the lowest since February 2005, the Labor Ministry said today.

Slower Growth

Japan's economy probably contracted at an annual 0.5 percent rate last quarter, according to economists surveyed by Bloomberg News. Exports, which have driven the expansion since Japan emerged from a recession in February 2002, fell for the first time in more than four years in June.

``Japan is on the verge of a recession,'' said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. ``Consumer spending may not remain strong enough to prop up the economy.''

Retail sales rose 0.3 percent in June from a year earlier as consumers paid more for gasoline and food, another report today showed. When adjusted for inflation, sales slumped 3.3 percent, the fourth monthly decline, according to Shinichiro Kobayashi, a spokesman at the trade ministry.

Goods purchased at least 15 times a year climbed 4.2 percent in June. Summer bonuses at the nation's largest companies probably dropped in 2008 for the first time in six years, a survey by the Keidanren business lobby showed.

Recession Risk

The economy may slip into a recession as higher prices weigh on the expansion, Bank of Japan Deputy Governor Kiyohiko Nishimura said in an interview with the Mainichi newspaper published today.

The central bank cut its assessment of the economy this month, saying it's slowing ``further'' because of weak business investment and consumer spending. The risk of a recession will prevent the bank from raising the benchmark interest rate from 0.5 percent this year, economists say.

Salvatore Ferragamo SpA, an Italian luxury shoemaker, last month cut the price of 15 bags by 10 percent on average and 27 shoes by 7 percent in Japan, the first market where they've lowered prices.

Aeon Co., the nation's largest supermarket operator, this month reported it will need to close more stores than planned after profit dropped by a fifth in the three months ended May.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net