TOKYO (AFP) — Japan's unemployment fell to its lowest level in more than nine years in July but sluggish spending and inflation lowered chances the central bank will soon hike interest rates, economists said Friday.
Japan is in the midst of its longest economic expansion since World War II. But companies have been slow to share growing profits with workers, meaning consumer consumption has lagged behind in the nation's recovery.
The unemployment rate hit 3.6 percent in July, down 3.7 percent the previous month and the lowest since February 1998, according to government data.
But Japan's core consumer prices fell by 0.1 percent in July from a year earlier, declining for a sixth straight month and showing that the world's second largest economy is still struggling to overcome deflation.
Lingering concerns over deflation -- which hurts the economy by discouraging spending and investment -- have been a headache for the central bank.
The Bank of Japan last raised interest rates in February to 0.5 percent, which remains far lower than other major economies and has contributed to the yen's recent volatility.
The central bank refrained from lifting the rates in August amid turmoil on global markets caused by concern over the US "subprime" sector, in which customers with patchy credit histories defaulted on mortgage payments.
"It seems difficult for the BoJ to go ahead in September" with a rate hike, said Junichi Makino, senior economist at Daiwa Institute of Research.
"Consumer price data is still weak and there is uncertainty over the financial markets," he said.
"As the Federal Reserve may cut interest rates again, the BoJ will have to wait and see" until October or November, he said.
But Toshio Sumitani, economist at Tokai Tokyo Research Center, said the string of data released Friday also confirmed "the Japanese economy was strong until July-August."
"We have to watch how the subprime problem and subsequent falls in stock prices affect real economies," Sumitani said.
The Tokyo financial markets were strong Friday, with the Tokyo Stock Exchange's key Nikkei-225 index closing up 2.57 percent, bucking renewed weakness on Wall Street over the subprime issue.
Dealers said the market benefitted from a depreciation in the yen, which benefits exporters, but that Friday's economic data offered no surprises.
Japan's labour market has been strengthening as companies compete to hire skilled young graduates, but many of the new jobs are insecure.
Average spending by Japanese households in July edged down 0.1 percent in real terms from a year before, with income by salaried warkers' households falling 3.3 percent, separate data showed.
"Corporate surveys have shown companies these days are distributing more of their profits to shareholders and their own executives rather than paying rank-and-file workers," Makino said.
He noted there was still a shortage of full-time jobs.
The labour ministry said Friday the ratio of job offers to job seekers stayed at 1.07, meaning there were 107 offers against every 100 job hunters.
But the ratio for full-time jobs was only 0.59 in July, much lower than 1.22 for part-timers.
Housing starts in July also fell 23.4 percent from a year earlier, a turnaround from a 6.0 percent rise in June and much worse than economists' consensus for a 1.0 percent drop.
Japan's industrial output fell 0.4 percent in July from the previous month after a major earthquake crippled automobile production for days.
But an industry ministry official downplayed the data, saying that production would have risen without the earthquake.
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