Japan’s Jobless Rate Soars, Prices Fall as Recession Spreads

By Toru Fujioka and Mayumi Otsuma

May 1 (Bloomberg) -- Japan’s unemployment rate surged to a four-year high in March and consumer prices fell for the first time in 18 months, indicating any recovery in the world’s second-largest economy is likely to be weak.

The jobless rate rose to 4.8 percent from 4.4 percent in February, the biggest jump since 1967, the government statistics bureau said in Tokyo today. Prices excluding fresh food slid 0.1 percent from a year earlier.

Household spending fell for a record 13th month as exporters from Pioneer Corp. to Toyota Motor Corp. cut jobs and wages to offset plunging profit. Japan’s economy may resume growing this quarter as production and exports stabilize following unprecedented declines, though the prospect of a return to deflation risks thwarting a sustained expansion.

“The economic environment for households is very harsh, with surging unemployment and decreasing income,” said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Securities Co. in Tokyo. “That means consumer spending won’t propel the economy for a while and it’s unlikely that Japan’s recovery will be strong.”

The yen traded at 98.90 per dollar at 12:37 p.m. in Tokyo from 98.71 before the reports. The Nikkei 225 Stock Average rose 0.6 percent.

The economy may expand at an annual 1.2 percent pace in the second quarter, according to the median estimate of 10 economists surveyed by Bloomberg after a report yesterday showed factory output rose for the first time in six months in March and companies planned further increases in April and May.

‘Moderate’ Recovery

The Bank of Japan said yesterday that the economy will expand 1.2 percent in the year starting April 2010 after shrinking 3.1 percent in the current year. The global economy is “leveling out” and Japan will “recover at a moderate pace” from the latter half of this fiscal year, the policy board said.

Job prospects are getting worse and wage declines are accelerating, damping consumption, reports showed today.

The ratio of positions available to each applicant dropped to 0.52 from 0.59, the lowest in seven years, the Labor Ministry said. Wages plunged 3.7 percent, the fastest drop in more than six years, as companies slashed overtime pay at a record pace to cope with the collapse in exports.

Spending by households slid 0.4 percent, capping off the worst losing streak since comparable data were first made available in 1964.

Pioneer, Teijin

Pioneer, a car audio and navigation systems maker, will eliminate 9,800 jobs and Teijin Ltd., a carbon fiber producer, will cut 2,500 jobs over three years, the companies said this week. Toyota, expecting a loss for the first time in almost six decades, has cut temporary jobs and also plans to reduce its fixed costs, including salaries, by 10 percent.

The number of cases of employees who lost their jobs because they were fired or a project ended totaled 5.5 million since September, the statistics bureau said.

“With employment and wages worsening, there are no short- term remedies to avert deflation,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo.

During Japan’s last bout with sustained price declines that began a decade ago, bankruptcies surged and the jobless rate advanced to a record 5.4 percent. Consumers delayed purchases, prompting companies to lower prices further, eroding profits and forcing them to cut wages.

Japanese policy makers are relatively sanguine about the likelihood of a return to deflation.

‘Too Early’

“It’s too early to judge from the CPI data that Japan is lurching toward deflation,” Finance Minister Kaoru Yosano said today. Bank of Japan Governor Masaaki Shirakawa said yesterday that there’s little risk of a deflationary spiral, even after his board forecast that consumer prices will drop 1.5 percent this fiscal year and 1 percent in the year starting April 2010.

The central bank cut the key interest rate to 0.1 percent in December, and has since bought corporate debt and expanded government bond purchases to channel funds to companies.

“Unfortunately, the Bank of Japan’s policy is currently focused on stabilizing financial markets and helping corporate borrowing, and there seems to be little chance that the central bank will take action to counter deflation,” said Adachi at Deutsche Securities.

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