Japan’s December jobless rate likely to remain unchanged at 3.3%

Japan's jobless rate has remained lower than 3.5% for some time, while labour demand and supply has become tight. The country's December unemployment rate is expected to remain unchanged at 3.3%. Meanwhile, in the last few months, Japan's jobless rate has been unstable, registering 3.4% in September, 3.1% in October and 3.3% in November. The volatility is due to considerable fall in the labour force after the rise in demand in September. This temporary trend continued in November as the labour force continued to contract while the number of employees continued to decline.

The number of new job seekers grew considerably by 6.7% m/m in October, whereas it declined by 4.9% in November. Nevertheless, these movements indicate a strong trend as it leads to strong employment numbers. In November, the job-to-applicant ratio increased to 1.25 and has possibly resumed its rising trend. The ratio is likely to remain at 1.25 in December.

According to the Tankan survey, the employment DI for all industries declined to -19, indicating that firms are very keen to increase hiring. Moreover, in Q4, the lending attitude DI of financial institutions for SMEs rose to +17.

The jobless rate is already below the NAIRU, while the labour market has been tight. Average wage growth looks moderate because of a rise in part-time workers, while aggregate wage growth is moving towards 2% y/y.  Meanwhile, inflation is expected to occur after wage growth in 2016, resulting in a rise in real wages that will boost consumption activities. It is essential that the jobless rate declines much below 3% in order for inflation to reach the BOJ's target rate of 2%. Also the tight labour market will bolster wage increases.