Japanese unemployment just plunged to a multi-decade low

Koki Nagahama/Getty ImagesRuna Imai dives in to start the Women’s 200m qualification during the Japan Swim 2016 at Tokyo Tatsumi International Swimming Pool.
  • Japanese unemployment plunged to 2.2% in May, the lowest level since 1992.
  • The ratio of jobs to job seekers hit 1.6, the highest level in over four decades.
  • Despite super-tight labour market conditions, wage growth remains elusive in Japan. The BoJ believes that will need to change for it to meet its 2% inflation target.

Japan’s unemployment rate plunged to the lowest level since the early 1990s in May, according to data released by the government on Friday.

After seasonal adjustments, the unemployment rate plunged to 2.2%, leaving it at the lowest level since July 1992.

The figure was below the 2.5% level reported in April. Economists had expected the rate to remain unchanged.

An ageing workforce and cultural factors largely explain why unemployment in Japan is so low.

The government said employment currently stands at 66.98 million, up 1.51 million, or 2.3%, from the levels on a year ago.

Japan’s labour force increased by 990,00, or 1.5%, over the same period to 68.56 million.

Unemployment currently stands at 1.58 million and has fallen by 520,000 over the past year.

Adding to evidence over just how tight Japanese labour market conditions are, the jobs-to-applicants ratio — simply measuring the number of job seekers to jobs available — rose to 1.6 in May, the highest level in over four decades.

Put another way, for every job seeker, there are currently 1.6 vacancies waiting to be filled.

However, despite super-tight labour market conditions, wage growth in Japan remains elusive.

Nominal worker cash earnings rose by 0.8% in the year to April, well below the 3% level the Bank of Japan (BoJ) deems necessary to achieve its 2% inflation target.

Speaking at the ECB’s central bank forum in Sintra, Portugal, earlier this month, BoJ Governor Haruhiko Kuroda backed a call from the Japanese government for employers to raise wages to help the central bank meet its inflation target.

“The government request for 3% wage increase is quite appropriate,” Kuroda said.

“While the labor productivity increase is around 1 percent, that means a 3% wage increase is necessary to be consistent with a 2% price stability target.”

Right now, growth of that magnitude appears to be a long way off, and partially explains why core Japanese consumer price inflation (CPI) is growing at an annual pace of just 0.7%.

Earlier this month, Marcel Thieliant, senior Japan economist at Capital Economics, estimated that wages need to grow by 2.5% for inflation to hit the BoJ’s 2% target on a sustained basis.

“We estimate that the jobless rate would have to fall to 1.5% for wage growth to be this strong, which will take a few more years,” he said.

“The upshot is that monetary policy tightening remains a long way off.”

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