Japan’s labour market is losing momentum

  • Japanese unemployment rose unexpectedly in October. The number of job openings to job seekers also fell.
  • The data follows a decline in Japanese GDP in the September quarter, and a recent weakening in growth in employee earnings.
  • Inflationary pressures in Tokyo fell sharply in November, reflecting weaker energy prices. Underlying inflation remained muted and well below the BoJ’s target.

Japan’s unemployment rose unexpectedly in October, a disappointing outcome on top of a recent softening in employee wages.

According to figures from the Internal Affairs Ministry, unemployment rose to 2.4% last month in seasonally adjusted terms, up from the 2.3% level reported in September.

Markets had been expecting the unemployment rate to hold steady.

Hinting that a recent weather-related decline in economic activity may be softening demand for workers, the jobs to applicants ratio — simply measuring the number of positions available to the number of job seekers — also fell, slipping from a multi-decade high of 1.64 in September to 1.62 in October.

The median economist forecast was looking for the ratio to increase to 1.65 over the month.

Japan Unemployment Rate (White, RHS) and Jobs to Applicants Ratio (Blue, LHS) Thomson Reuters

While the unemployment rate and jobs to applicants ratio both suggest that labour market conditions remain extremely tight, there’s still little evidence to suggest this is helping to fuel employee wages.

According to separate data released by the Japanese government earlier this month, nominal cash earnings for workers grew by 1.1% in the year to September, up slightly from the 0.8% gain reported in August.

After adjusting for inflation over the same period, real wages went backwards over the year, declining by 0.4%.

With earnings going backwards in real terms, it casts doubt over the ability for household spending — the largest part of the Japanese economy — to help lift economic activity by any meaningful amount in the period ahead.

With wage growth and economic activity both softening in recent months, that will also make it difficult for the Bank of Japan in its attempts to return inflation back to its 2% annual target.

Indeed, separate data released today revealed that consumer price inflation (CPI) in Tokyo decelerated sharply in the year to November, lifting by just 0.8%, below the 1.5% pace seen in the 12 months to October.

The decline was driven by a sharp pullback in energy prices with CPI less fresh food and energy growing by 0.5% over the same period, unchanged from the level reported in October.

The Tokyo figure is released ahead of the national measure, and suggests underlying inflation nationally will remain well below the BoJ’s target when released in early December.

In the year to October, nationwide inflation excluding fresh food and energy prices grew by 0.4%, unchanged from a month earlier.