May 2,2014,11.00JST

Able bodied becoming scarce

The Japanese labor market continues to heat up in March. The unemployment rate in March 2014 was 3.6%, unchanged from the previous month but still one of the lowest rate since 1998. The number of employed person increased by 0.8% YoY in March, slightly accelerating from 0.7% YoY in February. We would judge that Japanese labor market is becoming sufficiently tight that employers will need to increase wages to entice new hires. New job offers in March was up by 5.4% from a year ago, but new job applicants are down 9.7% from a year ago. Able bodies are becoming increasingly scarce.    

If the Japanese economy could maintain the current growth rate, we should see a virtuous cycle of reflation in Japan, with wage inflation sustaining consumer price inflation. However, the negative shock from the consumption tax rate hike in April may disrupt the cycle though. While policy makers in Japan maintain a positive tone on the economy and forecast the negative shock to be temporary, we think the shock will be larger than they anticipate. Policy makers will probably need to implement a stimulus measure later this year.  

For more details and charts on the Japanese labor market, please click here.