Despite persistent deflation, Japan's economy is on the road to recovery with more confident companies unexpectedly bringing unemployment to its lowest level in nearly seven years, official figures show.
The seasonally adjusted unemployment rate fell to 4.2% in June, the lowest level since July 1998 when it stood at 4.1%, the government said. Economists had expected the rate to stay at May's level of 4.4%.
The unemployment rate is closely watched for evidence of expanded hiring by Japanese companies which can in turn boost consumer spending, the key driver of the world's second largest economy as exports slow.
Analysts said that as companies become more confident, they have been increasing hiring of regular staffers instead of part-timers. They added that this improvement in employment is reflected in firm consumer spending at the moment, with sales of cars and television sets were particularly robust.
But the news is not all good for the information technology sector as falling prices are hitting their profits. Japanese electronics companies, led by Sony yesterday, said they had plunged into the red in the three months to June as prices dropped amid cut-throat competition.
Another set of government figures showed that Japan has yet to defeat its decade-old struggle against deflation. Core consumer prices in Tokyo, a leading index of nationwide trends, fell 0.4% in July from a year earlier, the 70th consecutive month it has dropped and compared with expectations for an 0.3% drop.
The ministry of internal affairs said in a separate survey said that spending by salaried households in June edged up 0.1% in real terms from a year earlier with disposable income rising 0.6%.
Consumer spending typically accounts for some 60% of a developed economy and is playing a key role in keeping Japan's recovery on track especially when export growth is slowing.
The trade ministry said today that industrial production in June increased 1.5% month-on-month after falling 2.8% in May. The ministry's survey of manufacturers projected that industrial output would fall 0.2% in July month-on-month but rise 1.9% in August.
