Japan's unemployment rate hits record high in July

[August 28, 2009]  TOKYO (AP) -- Japan's unemployment rate rose to an all-time high in July, deflation intensified and families cut spending -- a triple dose of bad news for Prime Minister Taro Aso as his party heads for almost certain defeat in Sunday's parliamentary elections.

The jobless rate hit a seasonally adjusted 5.7 percent, the highest level in Japan's post-World War II era and worsening from 5.4 percent in June, the government said Friday.

The previous record was 5.5 percent, last hit in April 2003.

Prices fell sharply amid the labor market worries. Japan's key consumer price index, which excludes volatile fresh food prices, tumbled a record 2.2 percent in July from a year earlier, according to the Ministry of Internal Affairs and Communications.

The figures come just two days before the country holds lower elections, widely seen as a referendum on the ruling party's handling of the economy. Recent polls predict that the Liberal Democratic Party, in power for most of the last half-century, is headed toward a historic drubbing at the hands of the opposition Democratic Party of Japan.

DPJ officials were quick to use the latest jobless figures as political ammunition.

"Although the ruling bloc claimed that 'the economy has rebounded,' (the nation's) weak economic structure dependent on external demand has not changed," Tetsuro Fukuyama, a DPJ senior official, was quoted by Kyodo news agency as saying. "It is necessary to swiftly realize the domestic demand-led economic measures we are advocating."

Under a mantra of "Putting People's Lives First," the Democrats are offering a platform heavy on social welfare initiatives, including cash handouts for job seekers in training and families with children.

The government's chief spokesman, Takeo Kawamura, defended Aso's policies, pointing to the economic growth Japan recorded in the second quarter after a yearlong recession.

"There is no denying the fact that the economy is improving overall," he said at a news conference, according to Kyodo.

The world's No. 2 economy expanded at an annual pace of 3.7 percent in the April-June quarter. But economists note that exports served as the main driver of growth and that domestic demand remains fragile.

Meanwhile, a separate government report showed that families are scaling back their spending. Average household spending, a key barometer of individual consumption, in July declined 2 percent from a year earlier.

"We see consumption as a major concern for the Japanese economy," said Chiwoong Lee, an economist at Goldman Sachs in Tokyo. "Today's labor market release revealed worse unemployment ... than the market expected, the policy boost for consumption will face, and wages remain on a downtrend."

The total number of jobless in July jumped 40.2 percent from a year earlier to 3.59 million. Those with employment fell 2.1 percent to 62.7 million.

The labor ministry also reported Friday that the ratio of job offers to job seekers in July fell to an all-time low of 0.42. That means there were 42 jobs available for every 100 job seekers.

The unprecedented drop in global demand triggered by last year's financial crisis have forced Japanese companies to slash output and jobs. A recent rise in exports is fueling an emerging recovery among manufacturers, but many continue to cut costs.

Toyota Motor Corp. said Wednesday that it plans to reduce production capacity at one of its factories in Japan. Japan Airlines Corp. plans to cut about 10 percent of its workforce over the next three years, news reports said this week.

Kyohei Morita, chief economist at Barclays Capital in Tokyo, expects the unemployment rate to reach 5.9 percent in the first half of 2010.

Deepening deflation also threatens to undermine the country's economic health, just as it did during Japan's so-called "lost decade" of the 1990s.

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 five straight months. The figure marks steepest decline since the officials began compiling comparable data in 1971.

The core CPI for Tokyo retreated 1.9 percent in August, suggesting that prices nationwide are headed further south. Prices in the nation's capital are considered a leading barometer of price trends across Japan.

[Associated Press; By TOMOKO A. HOSAKA]

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