Unemployment rate falls to 3-month low in Japan; Monthly retail sales slow

Following the surprise decision by Governor Kuroda and the Bank of Japan to raise the cap on the 10-year government bond yields last week, the country’s unemployment data showed a decline to 2.5% for the month of November.

The unemployment rate eased from October levels of 2.6% and was the first instance of tightening in the past three months following a decline in active job seekers.

Companies have continued to show an appetite for hiring with the job availability ratio remaining unchanged at 1.35, after consistently rising every month for nearly a year.

The bulk of the improvement came in the tourism and hospitality sectors as Japan rolled back its daily entry cap in November, and eased covid border controls ahead of the onset of the holiday season.

However, job retention in sectors such as real estate and transportation was lacklustre.

Japan’s home market was dealt a blow earlier today with fresh data signalling that housing starts had contracted by 1.4%, marking the second consecutive negative rate of growth, despite expectations of a strong positive number.

Retail sales

The fall in the unemployment data coincided with the ninth consecutive month of positive growth in domestic retail sales, rising by 2.6% while marking the slowest gain since July.

On a monthly basis, retail sales were down 1.1% and reflected weakness in goods consumption as inflation hit multi-decade highs and surged to 3.8% YoY.

Uncertain outlook

Earlier in the week, Governor Kuroda stressed that the BoJ would continue its ultra-loose policy despite the rising inflationary pressures and last week’s steps towards potentially tightening monetary conditions.

With expectations that the labour market will continue to firm, higher wages and further inflationary pressures could materialize.

Yet, given stressed household consumption, the BoJ is downplaying any possibility of exiting negative rates for the time being.

Although views are mixed, the markets are now focused on the possibility of policy normalization once Governor Kuroda’s term ends in April 2023.