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Japan Unemployment Rate

The unemployment rate in Japan rose to 3.1% in November, after remaining constant at 3% for last two months.

Published monthly by the Ministry of Internal Affairs and Communication. Updated to the month of November 2016 (published on December 27th, 2016).

Recent data trend:

The demand/supply balance in the Japanese labor market remains tight. The unemployment rate rose slightly in November to 3.1%, up from 3.0% in October. The 0.1% point rise should not be a cause of a concern. Other labor market indicators such as new job offers to applicant ratio show that the demand supply balance remains tight. Job offers to applicant ratio rose from 1.40 in October to 1.41 in November. New job offers to applicant ratio remained unchanged in November at 2.11.   

While there is no question that the Japanese labor market is tight, we are hesitant to describe the situation as robust though. It is because the tightness in the labor market is caused as much by the shrinkage in the Japanese working population as from the rise in the demand for labor in Japan. The working age population in Japan, defined as the population of the age between 15 and 64, has been shrinking rapidly. In 2015, the work age population in Japan fell by as much as 1.1 million people. In 2016, the shrinkage will be 0.8 million people. Accordingly, job applicants have been declining by 5 to 6% per year in the last few years. 

Will the tightening in the labor market lead to higher wage inflation? That is the big question hanging in the air for the past few years. The BoJ governor Kuroda certainly hopes so, and he has been telling us that all we need is patience. While we agree that a tightening in the labor market should eventually lead to wage inflation, it is taking awfully long time in Japan. In our view, the chances are that a negative economic shock would arrive before the wage inflation pressure comes to fruition in Japan.

Brief overview of “Unemployment rate”

 

Unemployment rate is the ratio of unemployed to total working population. One needs to be actively searching for work to be recognized as an unemployed. Japanese unemployment rate has been one of the lowest among OECD countries alongside South Korea and Norway. NAIRU, the Non-Accelerating-Inflation-Rate of Unemployment rate, was considered to lie between 3.5% and 4.5% in Japan. As the current unemployment rate is already below the lower range of the NAIRU, the unemployment rate gap, the difference between NAIRU and the actual unemployment rate, should be exerting an upward pressure to wage inflation. Evidently though, the gap must be a very weak factor for the determination of wage inflation dynamics in Japan.

 

For more information, visit the official government page

Labor participation rate

Source: MIAC, JMA.

Note: Seasonally adjusted labor participation rate is calculated by dividing seasonally adjusted labor force by population of 15 years old and over.

The Next Release Date: January  31st, 2017.