Japan jobless rise to bite into shrinking spending

Japan's jobless rate rose to a near two-year high in June as factories froze hiring, threatening to hit shrinking household spending and an economy that probably contracted in the second quarter. With export markets also crumbling, Japan's longest post-war economic expansion is sputtering and the deputy governor of the Bank of Japan became the second board member in a week to warn of a downturn.
Household spending, a key gauge of personal consumption, fell for a fourth month, slipping 1.8 percent in June from a year earlier. Economists had expected a 2.8 percent decline, but saw no reason to be upbeat. The seasonally adjusted unemployment rate of 4.1 percent was higher than the 4.0 percent forecast, and would probably add to the woes of consumers already grappling with surging commodity costs and stagnant wages, they said.
"As job market conditions stall, consumer prices are rising, hurting the purchasing power of households and worsening consumer sentiment," said Naoki Iizuka, senior economist at Mizuho Securities. "These reinforce our view that the BOJ will likely leave interest rates unchanged for a while." BoJ Deputy Governor Kiyohiko Nishimura said in a newspaper interview that Japan may be "technically" heading into the recessionary phase of its economic cycle.
Companies have shed excess capacity, debt and labour, he added, explaining why the downturn would be less severe. Atsushi Mizuno, seen as one of the most hawkish policymakers at the central bank, said last week Japan may slip into a shallow recession.
When Japanese officials talk about a recession, they do not necessarily use the word in the technical sense of two consecutive quarters of economic contraction. They often simply mean a downturn in the economic cycle.
Most economists polled by Reuters expect Japan's economy to contract slightly in April-June as a global credit crisis triggered by US mortgage defaults hurts exports, and commodity costs deter consumption. Separate data showed retail sales rising 0.3 percent in June from a year earlier, but the unexpected gain was mainly due to higher fuel prices, another government official said.