Japan’s jobless rate likely to have remained at 3.1 pct in July

Japan’s jobless rate is expected to have remained below NAIRU in July. According to a Societe Generale research report, unemployment rate is expected to have remained at 3.1 percent in July, the same as in June.

With active recruiting activities given a strong perception of labor shortage, employment has risen steadily, while the rise in labor force participation by women and older age groups is being slowly absorbed by the labor market. As the job-to-applicant continues to rise, it appears that hiring intentions of companies are still strong.

Until June, the number of job applicants witnessed a drop for four straight months while job openings had increase for three consecutive months. Thus it is possibly becoming quite challenging for companies to secure employees.

The jobless rate has fallen to well below 3.5 percent, which is the average level at which wages begin rising. But jobless rate would have to decline below 3 percent and continue falling towards 2.5 percent for the inflation rate to reach and remain at 2 percent target that is set by the BoJ and the government.

The NAIRU of about 3.5 percent might lead to inflation of about 1 percent, whereas unemployment of 2.5 percent would result in inflation of 2 percent, noted Societe Generale.

“Some are of the view that unemployment will not fall below 3% structurally, but we think the bottom is far below 3% as we see no evidence whatsoever of long queues of people demanding goods and services”, added Societe Generale.