Japan jobless rate hits 16-year low, signals spending rebound ahead

Fri Jun 27, 2014 1:35am EDT
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By Leika Kihara and Stanley White

TOKYO (Reuters) - Japan's unemployment rate hit a 16-year low in May, suggesting the economy will rebound in the third quarter from a sales tax hike and consequent slump in consumer spending.

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.   Continued...

A man using a mobile phone walks down a corridor of a building at a business district in Tokyo June 26, 2014. REUTERS/Yuya Shino