Record jobless rate adds to Japan's woes


Japan's jobless rate is at a record high and likely to get worse, observers say

By staff and wire reports

TOKYO, Japan -- Japan said Friday its unemployment rate rose to a record 5.4 percent in October, continuing the torrent of bad news for the world's second-largest economy.

The number of jobholders dropped 1.03 million from the previous month, with part-time male workers at manufacturing plants suffering the most.

"The employment situation is severe. The 5.4 percent jobless rate is harsh," Finance Minister Masajuro Shiokawa told a Friday news conference.

Adding to the grim mood was data showing Japanese consumer prices continued to slide for the 25th straight month.

Average spending by wage-earning households rose a real 1.6 percent in October from a year earlier, the first rise in seven months, but the government said the gain was due to special factors such as the timing of school payments.

Challenge facing Koizumi

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The politically sensitive jobless figure highlights the challenges facing Prime Minister Junichiro Koizumi, who has pledged painful but vital reforms.

Ron Bevacqua, Tokyo-based chief economist for Commerz Securities, told CNN television Friday morning that Japan may be on the verge of a deflationary spiral.

He said the jobless figure was putting more downward pressure on the economy at the same time as deflation intensified.

Warning that the economic situation would "get worse before it gets better", Bevacqua said Koizumi had been an "enormous disappointment" in his handling of the situation.

He said that despite his public popularity, Koizumi had done virtually nothing to combat Japan's problems.

Gross domestic product (GDP) figures for the September quarter are due to be released on December 7. They will almost certainly show that Japan has joined the United States in recession, following the contraction in the June quarter.

Contraction see for 2001

Organizations such as the OECD and the International Monetary Fund have already predicted that Japan's economy will shrink this year by between 0.7 and 0.9 percent, and will continue to contract next year.

Overall, the number of unemployed in Japan rose for the seventh straight month to 3.52 million. This was 380,000 more than in October last year, the Ministry of Public Management, Home Affairs, Post and Telecommunications said.

"The jobless rate could eventually rise to near six percent. I think the worsening trend will continue until the middle of next fiscal year (that starts in April)," Tsurukazu Nakamura, economist at Fuji Research Institute, told Reuters news agency.

Unemployment has become a major headache for policymakers as Koizumi strives to forge ahead with planned structural reforms that promise yet more bankruptcies and job losses.

The government allocated about 550 billion yen ($4.44 billion) for job steps in a recently enacted extra budget for the current fiscal year. The government is also working on a second extra budget to keep deflation at bay.

"In the near term, we must focus on implementing job safety net measures. But over the longer term, we must take steps to strengthen the economy and create jobs," said Trade Minister Takeo Hiranuma.

"Should current economic conditions persist, there is a possibility of a further rise (in the jobless rate)," he added.

CPI drops for 25th straight month

Separate data on Friday showed that Japan's nationwide core consumer price index (CPI) fell 0.7 percent in October from a year earlier, dropping for a 25th straight month and underscoring prolonged deflationary pressure on the fragile economy.

The core index, which excludes volatile fresh food prices, was down 0.1 percent in October from the previous month.

Data for the Tokyo area, which comes out a month before the nationwide figures, showed core CPI falling 1.0 percent in November year-on-year, a 26th consecutive month of decline.

Reuters contributed to this report.