Japan Unemployment Rate

The unemployment rate in Japan fell back to 2.8% in June, the lowest in 23 years.

Published monthly by the Ministry of Internal Affairs and Communication. Updated to the month of June 2017 (published on July 28th, 2017).

Recent data trend:

The labor market continues to tighten in Japan. The unemployment rate fell back to 2.8% in June from 3.1% in May. The rate were 2.8% between February to April this year, and the rise to 3.1% in May was probably a statistical noise. As the Japanese economy continues to grow, we expect the rate to head downward in the coming months.

Japan’s job offers to applicant ratio rose to 1.51 in June from 1.49 in May. The ratio is the highest in the last 43 years since 1974. While the number of job offers continue to rise along with the expansion in the economy, the number of job applicants are falling. With the shrinking population, Japan simply does not have a resourse to meet the demand for labor. 

The new job offers to applicant ratio did fall in June to 2.25 from 2.31 in May, but the ratio is still very near the historical high since 1973. 

The tightness in the Japanese labor market is caused as much by a shrinkage in the Japanese working population as the rise in the demand for labor. The working age population in Japan, defined as the population of the age between 15 and 64, has been shrinking rapidly. In 2016, the work age population in Japan, defined as people between the age of 15 to 64, fell by 0.7 million people. Accordingly, job applicants have been declining by around 5% per year in the last few years. The working population is projected to shrink further by 0.8 million in 2017. 

It is puzzling that the wage inflation in Japan has remained low despite the labor shortage situation in Japan. Workers' preference for job stability and corporate managers' pessimism for longer term economic outlook are often cited as the reasons. In our view, however, it is a matter of time that employers start to resort to higher wages to man the shops they are forced to close because of the labor shortage. The big question is when. While it is difficult to pinpoint, we do believe that the turning point is near, most likely in the next 24 months and the wage inflation statistics should be examine closely to spot the beginning of a wage inflation 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: August 29th, 2017.

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