Japan’s Jobless Rate Hits Record 5.7% in Blow to Aso

By Toru Fujioka and Mayumi Otsuma

Aug. 28 (Bloomberg) -- Japan’s unemployment rate rose to a record 5.7 percent in July and deflation worsened, dealing a blow to Prime Minister Taro Aso on the eve of an election that polls indicate his ruling Liberal Democratic Party will lose.

The jobless rate rose more than economists estimated, surpassing the previous record 5.5 percent last seen in April 2003, the statistics bureau said today in Tokyo. Consumer prices dropped an unprecedented 2.2 percent from a year earlier.

Yukio Hatoyama’s Democratic Party of Japan may end the LDP’s 54-year grip on power as jobs vanish in the wake of the country’s worst postwar recession. Household spending slid 2 percent last month, indicating Aso’s cash handouts as part of a 25 trillion yen ($267 billion) stimulus plan are failing to spur demand among consumers whose wages are falling.

“The economy is the key factor for the election,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Voters naturally direct their frustrations about the slumping economy at the incumbent government.”

The yen traded at 93.69 per dollar at 1:05 p.m. in Tokyo from 93.60 before the reports were published. The Nikkei 225 Stock Average gained 0.2 percent. The yield on Japan’s 10-year bond rose one basis point to 1.31 percent.

The DPJ is projected to win more than 320 of 480 seats in the Aug. 30 lower-house election, according to an Asahi newspaper survey published yesterday. Finance Minister Kaoru Yosano said this week the opposition party is “engulfing Tokyo like a massive wave.”

Exports Tumble

Companies from Toyota Motor Corp. to Japan Airlines Co. are scaling back and cutting jobs as sales weaken at home and abroad. Exports fell 36.5 percent in July, a tenth monthly drop, as demand from all of the nation’s major markets deteriorated.

Economists surveyed by Bloomberg predicted the unemployment rate would increase to 5.5 percent from 5.4 percent in June. The rate is the highest since the government began collecting the data in 1953, a year after the U.S. military occupation ended. The LDP has governed Japan for all but 10 months since 1955.

More than $2 trillion in stimulus plans worldwide helped the world’s second-largest economy grow at an annual 3.7 percent pace last quarter, the first expansion in more than a year. Economists expect growth will weaken in coming quarters once the government cash injections are exhausted.

Job Prospects

The jobs-to-applicants ratio, a leading indicator of employment trends, fell to a record 0.42 in July, meaning there are only 42 positions for every 100 candidates, the Labor Ministry said today. The number of unemployed rose by 200,000 from June, the biggest increase since March.

“We are very far from a solid recovery,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “There’s a high risk for a more serious labor adjustment going forward” as companies offload workers they no longer need, he said.

Toyota, Japan’s biggest automaker, said this week that it will shut down a domestic assembly line as sales plunge. Japan Airlines, Asia’s largest carrier by sales, may cut 5,000 jobs in three years, Kyodo News reported. Isetan Mitsukoshi Holdings Ltd., Japan’s largest department store chain, plans to eliminate 1,000 jobs by March, Nikkei English News said.

The jobless rate would be around 12 percent if all of Japan’s excess workers were considered unemployed, according to Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.

‘Want a Promise’

Hisako Abe, 53, signed up for a computer-training course in an effort to find regular work.

“I want to be a full-time employee, or at least have a part-time job that’s stable,” Abe, who was laid off in April, said at an unemployment office in Tokyo. “I want a promise that they won’t fire me right away.”

Deflation is also threatening the recovery. Last month’s drop in prices excluding fresh food, which matched economists’ estimates, was the steepest since the survey began in 1971.

“Nothing can stop prices from falling now, given that demand has deteriorated so much,” said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo.

Consumers, whose spending accounts for more than half of the economy, may delay purchases if they expect goods to get cheaper. That would erode profits and force companies to keep cutting wages, which tumbled an unprecedented 7 percent in June.

Bank of Japan board member Atsushi Mizuno said last week that policy makers should “be prepared to fight a long-term battle” with deflation. The central bank, which has cut the key interest rate to 0.1 percent, has few tools to prop up inflation and economic growth in the short term, he said.

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