Japan’s Jobless Rate Rises to Six-Year High, Prices Decline

July 31 (Bloomberg) -- Japan’s unemployment rate rose to a six-year high in June, undermining the outlook for consumer spending just as exports start to improve.

The jobless rate advanced to 5.4 percent from 5.2 percent in May, the statistics bureau said today in Tokyo, higher than the 5.3 percent median forecast of economists surveyed. Consumer prices excluding fresh food, the central bank’s preferred gauge, fell a record 1.7 percent in June, a separate report showed.

Economists expect the jobless rate to rise to a record 5.8 percent as production at three quarters of last year’s levels exerts pressure on costs even as companies start to ship more goods. Deflation may erode corporate profits, further hampering Japan’s recovery from its deepest postwar recession.

“Worsening job prospects will continue to weigh on Japan’s recovery,” said Yasuhiro Onakado, chief economist in Tokyo at Daiwa SB Investments Ltd. in Tokyo. “The export recovery is helping production but capacity utilization is still low and companies are still saddled with excess capacity and employment.”

The yen traded at 95.52 per dollar at 10:04 a.m. in Tokyo from 95.46 before the report was published. The Nikkei 225 Stock Average rose 1.4 percent to 10,305.40, heading for its highest close since Oct 6, after Sony Corp. posted a smaller than expected quarterly loss.

Given Japan’s current production levels, companies have 6 million extra workers, the highest ever, the Cabinet Office said last week. A report yesterday showed that while output increased 2.4 percent in June from the previous month, it fell 23.4 percent from a year ago.

Record Low

The number of positions available to each job applicant rose stood at 0.43, a record low, the Labor Ministry said. Economists regard the ratio as a leading indicator for the unemployment rate.

Consumers have received temporary relief from the downturn from Prime Minister Taro Aso’s 25 trillion yen ($262 billion) in stimulus spending that included measures ranging from cash handouts to tax breaks on fuel-efficient vehicles. The packages helped bolster consumer confidence to an 18-month high in June.

Household spending rose 0.2 percent, a second monthly gain, a separate report showed today. Economists expected outlays to increase 0.5 percent.

“Consumer spending will clearly start weaken once the impact of the stimulus packages fades,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Nintendo Co. and Sony, the largest makers of game consoles, are facing mounting pressure to cut prices after reports yesterday showed sales of the motion-sensing Wii fell for the first time and PlayStation 3 shipments tumbled to a two-year low.

The U.S. unemployment rate rose to a quarter-century high of 9.5 percent in June and in the euro zone it reached a decade high of 9.5 percent in May.

Saving More

At home, consumers are starting to save more, prompting retailers to offer cheaper products to lure consumers. Department store operator Millenium Retailing Inc. will start selling cheaper, generic products in September, according to Nagatoshi Nii, spokesman at the retailer. Aeon Co., Japan’s second-largest retailer, started selling house-brand beer that’s 20 percent cheaper than equivalent products at major breweries.

The drop in consumer prices will probably accelerate through the third quarter and exceed 2 percent in reaction to last year’s record increases in oil, Bank of Japan board member Tadao Noda said yesterday. Declines will moderate after that as the economy improves, he added.

Summer bonuses at Japan’s largest companies will slide a record 18.3 percent this year, according to a survey published last month by the Keidanren, the country’s biggest business lobby. The average budget for this summer vacation for each individual dropped 18 percent to 88,000 yen ($925) from last year, the lowest in four years, Dentsu Research Inc. reported this week.