Japan’s Tight Labor Market Edges Down From Peak

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Two measures of Japanese labor market softened in September, indicating that while conditions remains extremely tight, they are starting to show signs of loosening just as the economy comes under pressure from a sales tax hike.

The unemployment rate unexpectedly rose from a 27-year low to 2.4%, the government said Friday. Economists had forecast the jobless rate to remain unchanged at 2.2%.

A separate measure of tightness in the labor market, the jobs-to-applicant ratio, fell for the fourth time since April, hitting its lowest level in nearly two years. The measure is seen as a future indicator of job market strength.

Key Insights

• Keeping the labor market tight is central to the government’s economic policy. Japan’s tight jobs market has been cited by Abe administration and central bank officials as one of the success stories of Abenomics. High employment levels have helped support consumer spending and put upward pressure on wages, though pay hasn’t grown at the pace expected by economists.
• An increase of 90,000 job seekers in September compared with a month earlier was a big factor behind the increase in the unemployment rate, according to an official at Japan’s statistics bureau, indicating this as a sign that strength in the labor market was attracting new entrants.
• The job market reports come a day after the Bank of Japan refrained from adding stimulus, maintaining its view that private consumption remains in a moderate uptrend with a solid job market and relatively firm wages.
• A sales tax increase that went into effect Oct. 1 is likely to cloud that picture, at least in the short-term. Economists forecast the economy will contract 2.7% this quarter as households tighten their purse strings.
• Masaki Kuwahara, an economist at Nomura securities, said he wasn’t concerned about September’s uptick in the jobless rate, but a recent decline in want-ads for workers bears watching. “If the labor market were to worsen and consumer spending were to soften, that would cause the BOJ’s economic view to crumble.”

What Bloomberg’s Economists Say

“A decline in demand for workers in Japan’s manufacturing, wholesale and retail sectors put a dent a job market that is still very tight. Some sources of the weakness are temporary, some potentially more persistent. We continue to expect a tight labor market to support wage growth, but will be the lookout for further weakness at the margins that could take some steam out of wages.”

-- Yuki Masujima, economist

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• The job-to-applicant ratio fell to 1.57 in September, meaning there were about 157 jobs available for every 100 applicants. The measure was at a 45-year high of 1.63 in April.
• The number of workers counted in the labor force rose to 67.7 million in September, the most in data going back to 1953. The female participation rate rose to a record 71.6%.

--With assistance from Tomoko Sato and Toru Fujioka.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jason Clenfield, Paul Jackson

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