Japan's consumer prices rose at the fastest pace in a decade and the unemployment rate increased for the first time in five months, putting pressure on households already strapped by falling wages.
Core prices, which exclude fruit, fish and vegetables, climbed 1 percent in February from a year earlier, the statistics bureau said today in Tokyo. The jobless rate unexpectedly climbed to 3.9 percent, the first increase since September, and job vacancies slid to a two-year low.
A worsening job market is the latest evidence of economic deterioration that may force the Bank of Japan to reverse its policy and cut interest rates even as prices surge. Economic and Fiscal Policy Minister Hiroko Ota said faster inflation caused by higher energy and food costs may hurt consumers, whose spending accounts for more than half of the economy.
``All of today's numbers show that the Japanese economy is already in a mild recession,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Naturally the policy board needs to discuss a rate cut.''
Household spending stalled last month, the statistics bureau said. Economists estimated a 2.4 percent increase. The ratio of jobs to available to each applicant slid to 0.97, the lowest since September 2005.
The yield on Japan's 10-year bond fell 2 basis points to 1.25 percent at 10:58 a.m. in Tokyo. The yen traded at 99.50 per dollar from 99.44 before the reports were published.
`Flexible' Policy
Three central bank policy makers -- acting Governor Masaaki Shirakawa, Deputy Governor Kiyohiko Nishimura and board member Miyako Suda -- have said since last week that the bank is ready to take ``flexible'' policy steps if needed.
Traders see a 53 percent chance the central bank will lower the key overnight lending rate from 0.5 percent by December, JPMorgan Chase & Co. calculations show.
Today's figures signal wages, which had the steepest drop in three years in 2007, are unlikely to pick up anytime soon as higher oil and raw-materials costs squeeze companies' profits.
Pasona Group Inc., a temp agency, this week cut its profit forecast 36 percent for the year ending May 31, citing weaker- than-expected demand for temporary workers as the economy slows.
``Companies can't afford to hire employees and raise wages even if they want to,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``Profits are under pressure from oil, the surging yen, the U.S. slowdown and more reasons I can't even count.''
Production Slump
Reports next week will probably provide more evidence of the economy's deterioration.
Industrial production fell for a second month, economists expect the government to say on March 31. The Bank of Japan's Tankan survey, the nation's most closely watched gauge of business confidence, on April 1 is likely to show sentiment among large manufacturers fell to the lowest level in four years.
``A stalled job market and weakening consumer spending are evidence that Japan's economy is already in a recession,'' said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo. ``The Bank of Japan will have to cut interest rates between April and June.''
BOJ policy maker Suda said yesterday that growth in the year starting April 1 will probably fall short of the bank's 2.1 percent projection made last October. The central bank will release its next forecasts on April 30.
Core consumer prices started rising in October after declining for eight months. They either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.
Inflation May Wane
Some analysts say inflation may wane later this year as oil and commodities costs ease and consumer demand fails to pick up.
``With growth slowing and demand weakening in coming months, oil prices will probably fall and companies will continue to struggle to raise prices beyond oil and food,'' said Azusa Kato, an economist at BNP Paribas in Tokyo. ``Core-price inflation may slump to almost zero in the first quarter of 2009.''
Excluding energy as well as food, Japan's consumer prices fell 0.1 percent in February. By that measure, prices have failed to rise for more than nine years.
Parliament's decision on whether to extend a higher tax on gasoline may also affect inflation. The tax is set to expire on March 31 after the opposition Democratic Party of Japan refused to discuss a bill to extend it.
The tax may be renewed in a month or disappear indefinitely. An end to the levy would lower core prices by 0.4 percentage point and warrant a change in the inflation outlook, said Chiwoong Lee, an associate economist at Goldman Sachs Group Inc. in Tokyo.
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