Japan Inflation Slows, Job Prospects Worsen; BOJ May Cut Rate

By Mayumi Otsuma and Toru Fujioka

Oct. 31 (Bloomberg) -- Japan's inflation slowed in September and employment prospects worsened, giving the central bank more scope to cut interest rates.

Consumer prices excluding fresh food climbed 2.3 percent from a year earlier, after rising 2.4 percent in August, the statistics bureau said today in Tokyo. The unemployment rate fell to 4 percent from 4.2 percent as job seekers stopped looking for work amid the economic slowdown.

The Bank of Japan will probably halve the benchmark lending rate to 0.25 percent today, economists say, joining overseas counterparts in lowering borrowing costs to stave off a global recession. The government yesterday promised to pump 5 trillion yen ($51 billion) into the economy to help households and small businesses cope with the fallout from financial turmoil.

``To move and cut interest rates was already a done deal,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. ``It's difficult for the Bank of Japan to disregard the need for coordination with the government and the international authorities.''

There is a 60 percent chance the central bank will lower its benchmark rate a quarter point today, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps. Fifteen of 17 economists surveyed predict a reduction, which would be the first in seven years.

Bank of Japan Governor Masaaki Shirakawa and his board came under pressure to take action after the yen surged to a 13-year high last week, driving the Nikkei 225 Stock Average to the lowest level since 1982.

Stocks Drop

Japan's currency traded at 98.36 per dollar as of 10:44 a.m. in Tokyo from 98.73 before the economic data were released and as high as 90.93 a week ago. The Nikkei snapped a three-day winning streak, falling 2.4 percent.

Household spending fell for a seventh month in September and the ratio of jobs to applicants slid to a four-year low, separate reports showed. Any relief to consumers from slowing inflation may be outweighed as weakening global demand compels companies to fire workers and cut wages, economists said.

``Companies have no choice but to lay people off,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Profit has already started to decline.''

Nissan Motor Co. will fire 780 temporary workers at two domestic factories for large vehicles shipped to the U.S., Jiji Press reported today, citing unidentified company officials.

The number of people in the workforce shrank by 200,000 from August, today's report showed, causing the decline in the jobless rate. The number of people employed fell by 110,000, the report said, the fourth drop in five months.

In a Recession

The government last week acknowledged Japan has probably entered its first recession in six years as exports, production and spending slow.

Governor Shirakawa and his colleagues are expected to deliver their rate decision early this afternoon in Tokyo, before issuing their twice-yearly outlook for the economy and prices at 3 p.m. Fallout from the financial turmoil will probably prompt the board members to cut their inflation and growth forecasts.

Data released this month show commodity-driven inflation is already peaking. Producer-price gains slowed for a second month in September and the costs companies pay for services cooled to the slowest in two years.

Crude oil prices have halved in the past three months, and soybeans, corn and wheat have slumped after climbing to records earlier in the year.

Core prices in Tokyo, where one in 10 Japanese lives, rose 1.5 percent in October from a year earlier, after climbing 1.7 percent in September, today's report showed. Price trends in the capital tend to indicate future changes in nationwide inflation.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net