The jobless rate in the world's third-largest economy fell to 3.5
percent, the lowest since 1997 and a level the Bank of Japan says is
near full employment.
At the same time, the availability of jobs rose to its highest level
since 1992, good news for Prime Minister Shinzo Abe as he tries to
cement a recovery after two decades of stagnation.
The strong employment numbers were published alongside other data on
Friday showing Japan's household spending fell 8 percent in the year
to May, four times the drop projected in a median market forecast
and more than the 4.6 percent decline in April.
The tumble was due mainly to a pull-back in spending on housing,
cars and household appliances - all of which saw a surge in demand
before the sales tax hike on April 1.
"An (economic) contraction in the second quarter is a certainty, but
the job market improvements are positive for the economy," said
Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
The data is unlikely to change dominant market expectations that the
BOJ will hold off on further monetary stimulus probably for the rest
of this year, analysts say.
"The decline in household spending is too large to ignore, but if
you exclude auto sales there are signs that spending is bottoming
out," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ
Morgan Stanley Securities.
Households spent more on items such as television sets, personal
computers and clothing in May. Spending on eating out also stopped
Separate data showed core consumer inflation eased slightly in May
when excluding the effect of the tax hike, in line with the BOJ's
projections that price gains will slow in coming months before
accelerating again late this year.
The BOJ has signaled that it sees no immediate need to expand its
massive stimulus program deployed in April last year, stressing that
the cooling effect on consumption from the sales tax hike will be
The central bank has also said Japan is on track to meet its the 2
percent inflation target sometime next year, although it projects
consumer inflation to hover just above 1 percent for several months
as the boost from a weak yen fades.
The BOJ estimates that the sales tax rise to 8 percent from 5
percent would add 1.7 percentage points to Japan's annual consumer
inflation in April and 2.0 points from May onwards.
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"As the BOJ projects, consumer inflation will probably slow in
coming months but won't slip below 1 percent," Dai-ichi Life
Research's Shinke said. "I don't see any reason for the BOJ to ease
further for the rest of this year."
NO EASING EYED
Analysts expect the economy to contract in the second quarter due to
the tax hike, with a Reuters poll conducted in June projecting a 1.2
percent quarterly drop.
The contraction could be more severe given the weak spending data,
although the strong job market and an expected increase in summer
bonus payments will underpin spending.
"It may take a little longer for spending to recover, but there's no
need to turn pessimistic on the economy," said Miyazaki of
The nationwide core consumer price index (CPI), which includes oil
products but excludes the volatile prices of fresh food, rose 3.4
percent in the year to May, data showed on Friday, matching the
median market forecast.
That was the fastest since April 1982 as the tax hike pushed up
prices across the board.
Excluding the sales tax hike, core consumer inflation stood at 1.4
percent, a tad slower than the 1.5 percent annual increase in the
previous month, mainly due to the fading effects of the weak yen and
a rise last year in electricity bills.
(Additional reporting by Tetsushi Kajimoto; Editing by Shri
Navaratnam and Eric Meijer)
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