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Japan Jobless Rate Falling May Fail to End Recovery Concerns

Japan’s jobless rate unexpectedly declined in June, a positive sign for an economy struggling with gains in the yen and weakness in export demand because of Europe’s debt crisis.

The rate fell to 4.3 percent from 4.4 percent the previous month, the statistics bureau said today in Tokyo. The median estimate of 29 economists surveyed by Bloomberg News was for the rate to stay at 4.4 percent.

The yen rose more than 6 percent against the dollar since mid-March, hurting profits of exporters such as Canon Inc. (7751) and Nintendo Co., and reached an 11-year high against the euro last week. The improvement in the unemployment rate may not be enough to dispel concerns that a recovery is losing steam after industrial output declined for a third month in June. Job gains were in services, while manufacturing shed workers.

“Activity could drop more sharply once the full impact of the crisis in Europe and the strong yen hit home,” Julian Jessop, an economist at Capital Economics Ltd. in London said before today’s release.

The yen traded at 78.17 per dollar as of 11:29 a.m. in Tokyo compared with yesterday’s close of 78.18.

The government yesterday downgraded its assessment of industrial production for the first time since September, saying output is in “a flat trend.” Production of cars for overseas fell in June, it said. Last week, government reports showed that consumer prices unexpectedly declined and retail sales rose less than economists forecast.

Medical and welfare services added 310,000 jobs from a year earlier to a total of 7.03 million, while the manufacturing industry shed 90,000 to 10.4 million, according to the statistics bureau.

“The non-manufacturing sector is relatively solid, which is an underlying reason for the improvement in June,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “But, it’s obvious that the manufacturing sector isn’t getting better as overseas demand is slowing.”

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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