Japanese unemployment edges higher, deflationary pressures continue

| May 28, 2010

The world’s second largest economy was dealt a double blow of bad news today as figures revealed unemployment rose for the third consecutive month in April.

The unemployment rate rose unexpectedly to 5.1% in April from 5% in March – the highest level since January.

The number of unemployed stood at 3.56 million, up 2.9% from a year ago, the Ministry of Internal Affairs and Communications said.

However, the main issue continues to be deflation. Japan’s core consumer price index, which excludes volatile fresh food prices, fell 1.5% in April from a year ago – representing the 14th straight month of decline and larger than a 1.2% fall in March.

Deflation (where prices fall rather than increase) can be a serious threat to an economy because it deters consumers and businesses from spending in expectation of falling prices.

Japan has battled with deflation in the past and was a problem for the economy during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices

“Deflationary pressure is there and the size of the fall is still significant. The rate of improvement is still slow,” said Yoshiki Shinki, senior economist at Daiichi Life Research Institute.

Another risk for the Japanese economy is the country’s debt, which currently stands at nearly 230% of GDP – the highest of any industrialised nation.

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