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Japan jobless rate falls to 5.5 % in August

JAPAN'S jobless rate fell and household spending climbed in August - a double dose of good news for the world's No. 2 economy though it may not last.

The unemployment rate unexpectedly declined to 5.5 percent in August after reaching a record high of 5.7 percent a month earlier, the government said today. Analysts had been predicting that joblessness would continue climbing.

In a separate report, the Ministry of Internal Affairs and Communications said household spending rose 2.6 percent from a year earlier, lifted by one-time consumer incentives as part of government stimulus measures.

The results provide a welcome development for Japan as it emerges from its worst recession since World War II. But with an uncertain profit outlook, companies remain wary of investing in factories or workers - a deep wrinkle that could undermine the country's nascent rebound.

A sustained increase in the number of jobs looks unrealistic for now, said Chiwoong Lee, an economist for Goldman Sachs in Tokyo.

"With corporate profits down sharply, employment conditions are weak, and we think a full-fledged pickup in the employment picture is unlikely until ... March 2010 at the earliest," Lee said.

Even though unemployment fell month to month, the total number of jobless in August was up 32.7 percent from a year earlier to 3.61 million, the ministry said. Those with employment fell 1.7 percent to 62.96 million from a year earlier.

A breakdown of the data shows that while the number of workers employed in manufacturing dropped almost 10 percent on year, there was a marked rise in those employed in the care and hospitality sectors.

Men make up the majority of manufacturing job losses, said Kyohei Morita, chief Japan economist for Barclays Capital. Most finding work in hospitals, care centers and restaurants are women.

"In Japan, this would suggest... that spouses are going to work as the employment and income conditions of household heads deteriorates," Morita said.

The ratio of job offers to job seekers in August matched last month's record low of 0.42, the labor ministry said separately. That means there were 42 jobs available for every 100 job seekers.

The central bank's quarterly "tankan" survey of business sentiment released yesterday showed that companies may be more confident than three months ago, but they say they still have too many workers and too much capacity.

Major manufacturers and non-manufacturers plan to reduce their capital expenditures by an average 10.8 percent this fiscal year through March 2010.

"It doesn't help so much that companies are becoming a bit more optimistic," said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. "What they need to see is that we really have original new domestic demand. And this is simply not happening."

The Nikkei financial daily reported this week that major retailer Seven & i Holdings Co. is considering shuttering 30 Ito-Yokado Co. supermarkets nationwide in an effort to stem losses. And Japan Airlines said last month it plans to cut 6,800 jots by March 2012.

Japan's heavy reliance on exports, which drove economic expansion for five years through 2007, backfired in the aftermath of last year's global financial crisis. Between the third quarter of 2008 and the first quarter of 2009, Japanese exports plunged by the steepest margin among the Organization for Economic Cooperation and Development's 30 member countries.

The downturn resulted in a deep recession, which Japan finally managed to shake off in the April-June quarter. Aggressive emergency spending by governments, particularly China, has helped boost export demand and factory output.

The persistent caution among companies, however, doesn't bode well for private spending in the months ahead.

Concerns about deflation are also intensifying after prices in Japan tumbled at a record pace in August. Lower prices may seem like a good thing, but deflation can hamper growth by depressing company profits and causing consumers to postpone purchases, leading to production and wage cuts. It can also increase debt burdens.


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