Japan's Jobless Rate Rises; Inflation at Decade High (Update1)
By Mayumi Otsuma and Toru Fujioka
March 28 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in a decade and the unemployment rate increased for the first time in five months, reinforcing concerns that the economy is falling into a recession.
Core prices, which exclude fruit, fish and vegetables, climbed 1 percent in February from a year earlier, the statistics bureau said today in Tokyo. The jobless rate unexpectedly climbed to 3.9 percent, the highest since October, and job vacancies slid to a two-year low.
The combination of higher unemployment and faster inflation may complicate the Bank of Japan's efforts to boost an economy that analysts predict will grow at the slowest pace in five years in 2008. Near-record oil and commodity prices are driving inflation, and economists at Goldman Sachs Group Inc. and Sumitomo Mitsui Asset Management Co. say the nation's longest postwar expansion may have ended.
``All of today's numbers show that the Japanese economy is already in a mild recession,' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset in Tokyo. ``Naturally the policy board needs to discuss a rate cut.'
Household spending stalled last month, the bureau said. Economists estimated consumption to rise 2.4 percent and the jobless rate to stay at 3.8 percent. The ratio of jobs available to each applicant slid to 0.97, the lowest since September 2005.
`Flexible' BOJ Policy
The yen traded at 99.69 per dollar at 1:13 p.m. in Tokyo from 99.44 before the reports were published.
Three central bank policy makers -- acting Governor Masaaki Shirakawa, Deputy Governor Kiyohiko Nishimura and board member Miyako Suda -- have said since last week that the bank is ready to take ``flexible' policy steps if needed.
Traders see a 54 percent chance the central bank will lower the key overnight lending rate from 0.5 percent by December, JPMorgan Chase & Co. calculations show.
Former Governor Toshihiko Fukui, who retired last week, ended a deflation-fighting policy of pumping extra cash into the economy in March 2006. The bank increased the key rate to 0.25 percent in July 2006 and doubled it in February last year.
Today's figures signal wages, which had the steepest drop in three years in 2007, are unlikely to pick up anytime soon as higher oil and raw-materials costs squeeze companies' profits.
Pasona Group Inc., a temp agency, this week cut its profit forecast 36 percent for the year ending May 31, citing weaker- than-expected demand for temporary workers as the economy slows.
Can't Afford to Hire
``Companies can't afford to hire employees and raise wages even if they want to,' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``Profits are under pressure from oil, the surging yen, the U.S. slowdown and more reasons I can't even count.'
Reports next week will probably provide more evidence of the economy's deterioration.
Industrial production fell for a second month, economists expect the government to say on March 31. The Bank of Japan's Tankan survey, the nation's most closely watched gauge of business confidence, on April 1 is likely to show sentiment among large manufacturers fell to the lowest level in four years.
``A stalled job market and weakening consumer spending are evidence that Japan's economy is already in a recession,' said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo. ``The Bank of Japan will have to cut interest rates between April and June.'
Slower Growth
BOJ policy maker Suda said yesterday that growth in the year starting April 1 will probably fall short of the bank's 2.1 percent projection made last October. The central bank will release its next forecasts on April 30.
The world's second-largest economy will expand 1.5 percent this year, according to the median estimate of 17 economists surveyed by Bloomberg. That would be the slowest pace since 2003.
``Japan's economic recovery is pausing and the economy is on the verge of falling into a soft patch,' Economic and Fiscal Policy Minister Hiroko Ota said today. ``I'm concerned about the effect rising prices will have on consumer sentiment.'
Core prices started rising in October after declining for eight months. They either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.
Some analysts say inflation may wane later this year as oil and commodities costs ease and consumer demand fails to pick up.
``With growth slowing and demand weakening in coming months, oil prices will probably fall and companies will continue to struggle to raise prices beyond oil and food,' said Azusa Kato, an economist at BNP Paribas in Tokyo. ``Core-price inflation may slump to almost zero in the first quarter of 2009.'
Excluding energy as well as food, Japan's consumer prices fell 0.1 percent in February. By that measure, prices have failed to rise for more than nine years.
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