Japanese data dampens economic optimism

Worries mounted Friday that Japan's economic recovery is running out of steam as data showed the jobless rate rising and deflation continuing to hobble the world's number two economy.

Unemployed Japanese people search through job vacancies at an employment bureau in Tokyo. (AFP Photo)

The unemployment rate climbed to 5.2 percent in November from 5.1 percent in October, worsening for the first time in four months, the government said.

Core consumer prices fell 1.7 percent in November from a year earlier, the ninth straight month of drops, fanning worries that deflation could jeopardise a fragile recovery from the worst recession in decades.

Last week Japan's central bank said it was a "critical challenge" for Asia's biggest economy to overcome deflation, which hurts companies and encourages consumers to put off purchases.

The economy is still gradually recovering but increasingly appears to be heading for a lull, said Hiroshi Watanabe, an economist at the Daiwa Institute of Research.

"Unemployment has improved rapidly for the past three months (to October) as it emerges from the worst period, but it is likely to stay slightly above five percent in the coming months," he said.

The jobless rate was a record 5.7 percent in July.

Kyohei Morita, chief Japan economist at Barclays Capital, said the jobless rate could rise into the upper five percent range in the April-June quarter next year with retail and other sectors reducing job offers.

Deflation may ease due to an economic expansion and a planned tobacco tax hike, but inflation will not return any time soon, he added.

"It will be at least three years until we see price rises. Japan's economic recovery is not strong enough to break out of deflation," he said.

Japan's economy grew in April-June for the first time in five quarters on rebounding exports and government stimulus measures, but stubborn deflation is seen as a threat to the recovery.

Japan was stuck in a deflationary spiral for years after its economic bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of getting a lower price.

The current global economic downturn and a slump in commodity costs have pushed Asia's biggest economy back into deflation.

Watanabe said consumers were tightening their purse strings as they expect prices to fall further.

Government subsidies to spur purchases of environment-friendly cars and household appliances have supported buying of such items in recent months.

"But consumers were trying to curb spending on clothing and other items with no prospects that their income will rise," Watanabe said.

Household spending rose 2.2 percent in November from a year earlier, beating market expectations for a rise of 0.3 percent, the government reported.

The rise largely stemmed from purchases of consumer electronics, while spending on dining out and clothing fell.

Source: AFP

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