TOKYO • Labour demand in Japan rose to its strongest in more than 40 years while the unemployment rate held steady at a two-decade low last month, offering hope that a tight labour market will eventually spark a turnaround in weak consumer spending.
Separate data showed household spending fell more than expected last month due to lower spending on cars and education fees as consumer spending continues to lag behind improvement in other areas of the economy, such as exports and factory output.
Such a tight labour market could temper pessimism about consumer spending and bolster the Bank of Japan's (BOJ) argument that rising demand for workers will eventually spur inflation.
"Consumer spending looks weak now, but the labour market continues to improve," said Mr Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. "As more people get work, this should support consumer spending in the future."
The jobs-to-applicants ratio rose to 1.48 last month from 1.45 in the previous month, meaning 1.48 vacancies are available for each person seeking a job.
Labour demand has been rising steadily due to a shortage of workers and increased activity in services and construction.
The jobless rate held steady at 2.8 per cent last month, matching the lowest since June 1994.
The BOJ last month maintained its projection that price growth will reach its 2 per cent target in fiscal 2018 on the assumption that a tight labour market will push up wages, but not all economists are convinced.
Economists say some companies are opting to cut business hours, which makes it difficult for wages to rise.
"Some companies are scaling back the level of services they offer instead of going out and getting the workers they need," said Mr Hiroaki Muto, economist at Tokai Tokyo Research Centre Co. "This is not likely to lead to higher take-home pay."
Japanese household spending fell 1.4 per cent last month from a year earlier in price-adjusted real terms, more than the median estimate for a 0.7 per cent annual decline.
Excluding spending on autos and housing, household spending rose a seasonally adjusted 3.5 per cent last month from the previous month versus a 2.9 per cent decline in March, showing consumer spending is stronger than the headline figures, Mr Miyazaki said.
Separate data showed retail sales rose 3.2 per cent last month from a year earlier, more than the median estimate for a 2.3 per cent increase, but some economists say a small sample size may exaggerate the percentage change in this data.
Under a new policy framework adopted last year, the BOJ has pledged to guide short-term interest rates to minus 0.1 per cent and cap the 10-year government bond yield at around zero per cent.