Japan's unemployment rate hit a six-year high in June as mounting job losses and sharply falling prices threaten to stall a recovery in the world's second-biggest economy. The unemployment rate worsened to 5.4 per cent from 5.2 per cent in May, the government said on Friday.
The total number of jobless in June jumped 31 per cent from a year earlier to 3.48 million, according to the Ministry of Internal Affairs and Communications. Those with employment fell 2.3 per cent to 63 million.
The unemployment rate last reached 5.4 per cent in June 2003 after hitting a record 5.5 per cent a month earlier.
Economists predict a new record high in the months to come. "Employment conditions are taking another turn for the worse," Hiromichi Shirakawa, chief economist at Credit Suisse in Japan, said in a report. "It is disappointing that the recovery in manufacturing has failed to halt the decline in the number of people employed in the manufacturing sector."
The contradiction in Japan's rebound so far is that while the recession may be easing for companies like Toyota and Sony, it is deepening for workers and families.
Factory output in the April-June period surged 8.3 per cent in the biggest quarterly increase in more than five decades. An uptick in global demand, particularly from China, is fueling sales of machinery and cars.
At the same time, companies say their payrolls are still too fat and continue to cut costs.
A separate labor ministry report Friday showed that the ratio of job offers to job seekers in June fell to a record low of 0.43. That means there were just 43 jobs available for every 100 job seekers. The specter of deflation intensified amid the labor market worries.
Japan's key consumer price index fell a record 1.7 per cent in June from a year earlier, the government said.
Lower prices may seem like a good thing, but deflation can hamper growth by depressing company profits and causing consumers to postpone purchases, leading to production and wage cuts. It can also increase debt burdens.
The nationwide core CPI, which excludes volatile fresh food prices, has dropped for four straight months. The figure marks steepest decline since the officials began compiling comparable data in 1971.
The core CPI for Tokyo retreated 1.7 per cent in July, suggesting that prices nationwide are headed further south. Prices in the nation's capital are considered a leading barometer of price trends across Japan.
Retailers in turn are feeling the pressure to offer cheaper options for shoppers. The Nikkei financial daily reported Friday that Aeon Co. and Seven & i Holdings Co., two of Japan's biggest retailers, will begin buying raw materials directly from producers to slash prices of their house-brand products.
Average monthly household income fell 3.2 per cent in June from last year to 700,239 yen ($7,300), the government said. Still, household spending managed to edge up 0.2 per cent, helped by public measures to encourage shopping.
Prime Minister Taro Aso's 25 trillion yen in stimulus spending included cash handouts to residents and consumer incentives to buy green appliances.
Economists say domestic demand will probably wane as the impact of the policy measures fade.
"With the wage and employment environment turning increasingly severe ... a reactionary downturn in consumption looks inevitable at some stage," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.