Unemployment, deflation in Japan

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Japan January Jobless Rate Holds at Record High 4.9% (Update4)

By Yoshiko Matsushita, with reporting by Ryo Hino

Tokyo, March 2 (Bloomberg) -- Japan's jobless rate held at a record 4.9 percent in January and may rise as the number of jobs available fell for the first time in 20 months.

The statistics bureau also said December's jobless rate was higher than earlier estimated at 4.9 percent, revised from 4.8 percent. There were 65 jobs on offer for every 100 applicants at state-run work centers in January, down from 66 in December.

Unemployment may be poised to rise. Mitsubishi Motors Co. this week said it plans to cut 9,500 jobs in three years and retailer Daiei Inc. will shed 4,000 staff in that time. The nation suffered its first trade deficit in four years in January and industrial production posted its biggest decline in five years.

``The economy is deteriorating faster than expected,'' said Tomoko Fujii, senior economist at Nikko Salomon Smith Barney Ltd. ``Unemployment could easily reach 5 percent next month. There's no clear sign the economy will recover anytime soon.''

In January, spending by households headed by a salaried worker rose 0.8 percent from December, seasonally adjusted, another report showed, broadly in line with expectations as unusually cold weather sent people shopping for heaters and winter clothes. From a year ago, spending was unchanged.

In another sign of slowing growth, consumer prices in Tokyo, excluding fresh food, fell 0.3 percent last month. Prices in the capital, home to about one-quarter of the nation's people, fell a record 1.1 percent from a year ago.

Stocks Fall

Stocks extended declines after the report was released. The benchmark Nikkei 225 stock index fell below 12,500 points for the first time in more than 15 years, to a low of 12,428.48. The index finished morning trade down 1.4 percent at 12,503.56.

Ten-year bond yields were unchanged at a 26-month low of 1.21 percent, after falling 10 basis points yesterday. The yen was recently trading at 117.35 to the dollar, near a two-week low, from 117.40 in late New York trading.

The number of people working in the services, construction and agricultural industries fell last month. That was partly offset by an increase in jobs in the manufacturing and transport industries, and at wholesalers and retailers.

NTT East and NTT West, two regional units of Nippon Telegraph & Telephone Corp., last week said they'll speed job cuts that will eliminate about 6,700 positions by March 2002.

Companies are scaling back hiring as the economy slows. Gross domestic product shrank 0.6 percent in the third quarter last year, and a report this week showed industrial production declined 3.9 percent in January, raising concern the economy is on the verge of sliding back into recession.

``The drop in production means the new jobs won't be created at the same pace as before,'' said Eishi Yokoyama, an economist at Chiyoda Life Capital Management Ltd.

The Bank of Japan Wednesday cut its key interest rate 10 basis points to 0.15 percent, saying the pace of the recovery has slowed. Economy minister Taro Aso said the economy is deteriorating. ``I think the economic situation is getting more severe,'' Aso told reporters after the cabinet meeting. ``The economy is now more at a standstill.''

`Deflation is Real'

The decline in prices last month suggests the country's two- year bout with deflation is getting worse. ``Deflation is real, and it's increasing not only because of structural changes on the supply side but also due to the weakening in demand,'' said Vincent Musumeci, an economist at ABN Amro Securities (Japan) Ltd.

After cutting rates Wednesday, BOJ Governor Masaru Hayami said the risk the economy tips into a deflationary spiral, where falling prices hurt profits, forcing companies to trim wages, which makes consumer reluctant to spend, is increasing.

Incomes rose 7.3 percent from December, though were still 1.4 percent lower than a year ago. The propensity-to-spend ratio, which falls when people save more, dropped to 71.7 percent in January from December's 75.6 percent.

``Spending isn't doing terribly bad but it's not going to pick up anytime soon,'' said Tatsuya Torikoshi, a senior economist at Daiwa SB Capital Markets Co., before the figures were released.

-- (M@rket.trends), March 02, 2001


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