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Japanís jobless rate rises as inflation hits decade high PDF Print E-mail
Sunday, 30 March 2008

Japan said Friday its jobless rate rose for the first time in five months as core inflation hit the fastest pace in a decade, adding to concerns about the health of Asia’s largest economy, reports AFP.

Companies are hiring fewer workers as they grapple with rising costs and falling exports to the ailing US economy, a slew of data showed.

The jobless rate rose unexpectedly to 3.9 percent in February from 3.8 percent the previous month, official figures showed. Although Japan should avoid a sharp rise in unemployment in the coming years thanks to the retirement of post-war baby boomers, the labour market could worsen in the near term because of a tougher business climate, analysts said.

“We’re not seeing a sharp deterioration, but there are some signs of a softening in employment growth, particularly for small firms which have been hit by rising costs,” said Lehman Brothers economist Hiroshi Shiraishi.

Core consumer prices, which exclude volatile fresh food, rose 1.0 percent in February from a year earlier, the quickest pace since March 1998. Markets had expected a 0.9 percent rise, after a gain of 0.8 percent in January.

For years, the biggest headache for Japan’s central bank was deflation, or falling consumer prices, which undermined company profits and gave consumers an incentive to wait to spend their money. Now it has another worry—soaring prices of oil, raw materials and food that are making life tougher for companies and consumers.

“There’s very little upward pressure on prices domestically. It’s basically all coming from imported inflation and that’s hurting household sentiment,” said Shiraishi. Unless oil prices keep soaring, however, inflation should moderate later in the year given the weak domestic price pressures, he added.

Markets see little chance of an interest rate hike any time soon by Japan’s central bank to try to contain price pressures given worries about the health of the global economy and financial markets. Although consumer prices are rising, wages remain sluggish due to meagre pay rises and as younger workers replace retiring baby boomers.

Japanese household spending was flat in February as average incomes dipped 0.1 percent, the government said. The sluggish results defied analysts’ forecasts of a rise of 2.5 percent in household spending, following a 3.6 percent rise in January.

Although the spending figures have a reputation for being unreliable, analysts agreed that the retail sector remains lacklustre. “Consumption is sluggish due to poor sentiment and a gradual slowdown in employment,” noted Goldman Sachs economist Naoki Murakami.

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