Japan’s Jobless Rate Unexpectedly Falls From Record

By Aki Ito and Toru Fujioka

Oct. 2 (Bloomberg) -- Japan’s jobless rate unexpectedly retreated in August from a record and household spending rose as the nation emerged from its worst postwar recession.

The unemployment rate fell to 5.5 percent from 5.7 percent in July, the statistics bureau said today in Tokyo. None of the 29 analysts surveyed by Bloomberg predicted a decrease. Spending by households unexpectedly rose 2.6 percent from a year earlier, the biggest jump in 19 months.

Today’s reports add to evidence this week showing the recovery may be sustained: business sentiment rose for a second quarter and industrial production gained for a sixth month. Economists say the revival is likely to be tepid as companies burdened with excess capacity cut spending and deepening deflation erodes profit.

“I wouldn’t be dancing in the street over that one, but I do think labor demand is turning,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “You’re seeing it in the business confidence surveys, you’re seeing it in manufacturing overtime, and you’re starting to see it now in things like the new job offers.”

Investors shrugged off the reports. The Nikkei 225 Stock Average lost 2.5 percent at 1:59 p.m. in Tokyo, heading for its third weekly decline. The yield on the 10-year government bond fell four basis points to 1.25 percent. The yen traded at 89.42 per dollar from 89.58 before the reports, edging toward an eight-month high of 88.24 reached earlier this week.

Stronger Yen

The Japanese currency’s 7 percent gain in the past three months threatens to erode exporters’ repatriated earnings and make their products less competitive abroad.

Economists forecast the unemployment rate would climb to 5.8 percent and household spending would slip 0.2 percent.

Government incentives to buy electronics products as part of the previous government’s 25 trillion yen ($280 billion) stimulus package buoyed demand for televisions, personal computers and refrigerators, the bureau said.

“Consumers are realizing that things aren’t as bad as they thought,” said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. “Things will continue to improve, but for consumer spending to become sustainable we’re going to need a stronger job and wage market.”

More Employed

The number of employed rose by 290,000 from July, the first increase since January, the bureau said. A separate report showed the job-to-applicant ratio, a leading indicator of employment trends, stopped worsening for the first time since January 2008. The ratio stayed at a record low of 0.42, meaning there are only 42 positions for every 100 candidates.

The Bank of Japan’s quarterly Tankan business survey yesterday showed confidence among large manufacturers rose for a second straight quarter from a record low of minus 58 in March. The index gained to minus 33 from minus 48, still a level on a par with the previous recession in 2001.

That survey also showed big companies plan to cut spending at a faster pace than they anticipated three months ago and forecast profits will drop 22 percent in the year ending March. While labor demand improved from the previous Tankan, large manufacturers still reported having too many employees.

Some economists say the unemployment rate probably hasn’t peaked, as companies including Japan Airlines Corp. cut jobs even as the economy recovers. Fifteen months of wage declines are also likely to discourage consumers from spending.

Next Spring

“It might take until next spring before employment starts going up again,” Randall Jones, head of the Japan desk at the Organization for Economic Cooperation and Development, said in an interview in Tokyo yesterday.

Japan Airlines, Asia’s most indebted carrier, said last month that it will cut 6,800 jobs as it plans the biggest reduction of routes in its history.

“Even when things start to get better, employers will delay hiring for some time,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Companies are still burdened with excess workers.”

The jobless rate will climb to 5.9 percent in the second quarter of 2010, according to economists surveyed by Bloomberg. The current rate reflects Japanese businesses’ cultural reluctance to fire workers and the country’s strict labor laws, according to Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo.

That’s making it tough for graduates to get work.

“I used to be against using personal connections for job leads, but it’s been impossible to find anything through the normal channels,” said Yoko Kasai, 23, who finished four years of college in Japan and a year abroad in the U.K. “I didn’t think it was going to be this hard for my friends and I to land a job we want.”

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net