Japan’s unemployment rate fell to 2.5% in June from 2.6% the previous month, the Ministry of Internal Affairs said Tuesday, confounding economists’ expectations for a reading of 2.6%. The number of employed people increased by about 370,000, with women the biggest beneficiaries, while the number of unemployed rose by about 20,000.
Japan is facing a persistent labor shortage due to an aging population and a shrinking workforce, prompting companies to offer the biggest wage hikes in more than 30 years during annual spring negotiations with unions. The pay increases exceeded 5%, according to final figures from the country’s largest union group.
Takeshi Minami, an economist at Norinchukin Research Institute, said the labor market remains tight, adding upward pressure on wages, especially among smaller companies that are forced to raise wages to secure a workforce. Last week, the Labor Ministry proposed a record 5% increase in the minimum hourly wage this fiscal year, suggesting wage growth is spreading across a broad range of sectors.
The Bank of Japan is seeking signs that sustained wage increases will boost consumption and drive demand-led price growth, giving authorities more room to normalize monetary policy. The bank is expected to unveil its plans for quantitative easing after a two-day board meeting that ends on Wednesday. About 30% of economists believe a rate hike is likely by then, according to a poll.
The BOJ is also expected to update its economic outlook, having stressed in its April report that labor market conditions will tighten amid the economic recovery and that trend wage growth will accelerate in part due to higher prices.
In a separate report, the job-to-applicant ratio fell on a monthly basis to 1.23, meaning there are 123 jobs available for every 100 applicants, the lowest since March 2022.
Japan’s falling unemployment rate impacts markets
Japan’s Nikkei 225 staged a late recovery, rising 0.15% to 38,525.95, while the broader Topix index fell 0.19% to close at 2,754.45. This came as Japan’s unemployment rate for July came in at 2.5%, compared with expectations of 2.6% according to a Reuters poll of economists.
Meanwhile, Asia-Pacific markets fell on Tuesday as the Bank of Japan began its two-day policy meeting. The bank is expected to raise its benchmark interest rate and reduce its purchases of Japanese government bonds, with economists expecting the rate to be raised to 0.1% from the current range of 0% to 0.1%.
In South Korea, the Kospi fell 0.99% to close at 2,738.19, while the Kosdaq fell slightly by 0.52% to 803.78. In Australia, the S&P/ASX 200 fell 0.46% to close at 7,953.2.
Shares of mining company Fortescue fell more than 10.27%, hitting their lowest in more than 20 months, after JPMorgan’s capital markets team announced a discounted share offering worth A$1.9 billion (US$1.2 billion) on behalf of an undisclosed institutional investor.
In Hong Kong, the Hang Seng Index fell 1.43% by the end of trading, while mainland China’s CSI 300 Index fell 0.63% to a six-month low of 3,369.38. In contrast, Standard Chartered shares rose 4.84% after it announced its largest share buyback of $1.5 billion and raised its 2024 earnings outlook during its first-half results.
As the labor shortage continues, small businesses are facing significant challenges. Some 182 companies went bankrupt due to workforce constraints in the first half of 2024, the highest number on record, according to a survey by Teikoku Databank. Of those, 80% had fewer than 10 employees.
Factors Affecting Unemployment in Japan: A Comprehensive Analysis
There are many factors that affect the unemployment rate in Japan, including economic, demographic, and political aspects. Here are some of the main factors:
- Economic factors
Economic expansion and contraction: The unemployment rate is directly related to economic growth. During periods of growth, demand for goods and services increases, leading to an increase in job opportunities. Conversely, during economic recessions, job availability may decrease.
Changes in the industrial sector: Japan’s shift to a technology- and service-based economy may reduce demand for some traditional jobs and increase the need for new skills.
- Government policies
Training and employment programs: The Japanese government offers training and employment programs to improve the employability of individuals, especially in different age groups.
Labor legislation: Policies such as minimum wages and working hours can affect labor costs and the unemployment rate.
- International Trade
Export Dependence: Japan is highly dependent on exports, so changes in global demand can impact the domestic labor market. Declining demand for exports can lead to job losses in the sectors concerned.
Global Competition: Increased competition from other countries can lead to job losses in industries that are experiencing intense competitive pressures.
- Social Status
Social Attitudes: Changes in social values such as individuals’ preference to focus on family or education rather than work can impact the unemployment rate.
Inequality of Opportunity: Inequality of opportunity between the genders, or between urban and rural areas, can lead to differential unemployment rates.
- Economic Crises
Financial Crises and the Corona Pandemic: Global economic crises and health crises such as the Corona pandemic can significantly impact the labor market, leading to increased unemployment.
