Japan’s July jobless rate rises in negative signal for wages, central bank

TOKYO - Japan’s unemployment rate rose for the first time in four months in July, while a gauge of labour demand weakened a tad, in a pair of worrisome signals for both the Bank of Japan (BOJ) and the government.

The jobless rate increased to 2.7 per cent from June, the Ministry of Internal Affairs and Communications said on Tuesday. Economists had expected the reading to hold at 2.5 per cent.

The number of workers in July fell by 100,000 compared with June, while those without jobs rose by 110,000. The jobless rate for women increased in all age groups, while it fell for men between the ages of 45 and 54 and between 15 and 24. The number of people who left their positions against their will rose by 50,000.

Separate data casts a cloud over the outlook for Japan’s labour market demand, with the job offers to applicants ratio slipping for the sixth time in 2023 to 1.29 in July from 1.3. The data is a leading indicator of labour market trends, with the figures implying there were 129 jobs available for every 100 applicants.

“Looking at a leading indicator, the number of job openings in the manufacturing sector has been in a downward trend recently,” said Daiwa Securities economist Kota Suzuki. “This is likely due to the impact of declining overseas demand.” 

Job offers in the manufacturing sector dropped by 11.4 per cent. Osaka was among the locales with the lowest ratio, at 1.1, while the ratio for Tokyo stood at 1.79.

Bloomberg economist Taro Kimura said: “Looser labour markets risk triggering a negative spiral that feeds back into softer wage growth – a frustration for the BOJ, which wants demand to fuel inflation instead of higher costs.”

While Tuesday’s figures show unemployment in Japan is still low by international standards, they suggest recent tightness in the Japanese labour market may have peaked for now.

If so, it may present a problem for BOJ governor Kazuo Ueda. A tighter labour market is needed to spur wage gains, which in turn would contribute to a virtuous circle of inflation and salaries.

The central bank said in its July outlook report that employment will continue to grow and wage pressures will intensify. If this expectation materialises, it may alter Mr Ueda’s recent view that there is still some distance from the 2 per cent inflation target.

Mr Ueda re-emphasised at the Federal Reserve’s annual symposium in Jackson Hole last week that price growth remains slower than the central bank’s goal, thus justifying the ongoing monetary easing. 

Prime Minister Fumio Kishida said earlier in August that he aims to provide subsidies for companies that help dependent spouses, who face social security burdens if they earn more than 1 million yen (S$9,250) a year.

One reason why many married Japanese women avoid working more than minimal hours is that earning more than the cut-off amount means they are no longer treated as dependents and need to make separate social security payments, reducing their take-home pay. BLOOMBERG