Japan's jobless rate, deflation worsen
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By Yoshiko Matsushita and Daisuke Takato
Bloomberg News Service
TOKYO — Japan got another dose of bad economic news, with the jobless rate rising to a record and deflation tightening its grip as an 11-year slump in the world's second-biggest economy worsens.
A record 3.6 million people were out of work last month, pushing the jobless rate to 5.4 percent, the highest since records were first kept in 1953. Consumer prices in Tokyo dropped 1 percent this month from a year ago, government figures showed.
The jobless rate is set to climb as Isuzu Motors Corp. and West Japan Railway Co. dump thousands of workers. With unemployment rising, Sony Corp. and other consumer goods companies are reducing prices to lure shoppers.
That is putting pressure on Prime Minister Junichiro Koizumi to delay plans such as slashing public works spending and cleaning up bad loans at banks, steps that would initially make the pain worse.
The record jobless rate caps a week of bad economic news for Japan. Factory production fell to the lowest level in 13 years in October, the government said yesterday.
Earlier in the week, Standard & Poor's and Fitch IBCA Duff & Phelps both cut their rating on Japan's bonds one notch to "AA," saying Koizumi has been too slow to act on election promises to end the 11-year slump.
The only bright spot was a report showing spending by households headed by a salaried worker rose 3.1 percent last month from September. From a year ago, spending increased 1.6 percent.
With Japan's recession worsening, the jobless rate may top 6 percent next year, economists said. Japanese companies have announced more than 150,000 job cuts this year.
"This is just the beginning," said Yukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd., who forecast the jobless rate will reach 6 percent by the middle of next year. "Spending is set to fall, pushing Japan to the edge of a deflationary spiral."
Manufacturers, which employ about a fifth of Japanese workers, cut 120,000 jobs last month. Transport and telecommunication firms shed 240,000 workers and the services industry dumped 40,000. The number of full-time workers fell 1.4 percent to 46.3 million, while day laborers rose 21.4 percent to 1.25 million — the biggest drops since 1974.
The Bank of Japan's attempts to combat deflation by paring interest rates to close to zero and pumping trillions of yen into the money market to prod banks into lending has had little effect.
