Deflation tightened its hold on Japan in November and the unemployment rate rose for the first time in four months, as the world’s second-biggest economy struggles to stage a convincing comeback.

The unemployment rate climbed to 5.2 percent, reversing an improvement to 5.1 percent in October. The result marks the first increase since July and misses Kyodo News agency’s average market forecast of 5.2 percent.

Although export growth, particularly to the rest of Asia, is helping boost confidence among Japanese companies, they remain reluctant to spend on factories or workers amid falling prices and the yen’s recent strength.

The latest figures add to Prime Minister Yukio Hatoyama’s growing list of troubles, coming a day after the Japanese leader publicly apologized for two former aides charged with falsifying campaign finance reports.

Hatoyama’s popularity has dropped sharply just 100 days into his tenure as the nation questions his economic policies and ability to steer Japan toward growth.

The number of jobless rose more than 29 percent from a year earlier to 3.3 million, according to the Ministry of Internal Affairs and Communications. The number of employed people declined 2 percent to 62.6 million.

The drop in the employed population suggests that many workers have stopped looking for work and have simply given up on the labour market, said Chiwoong Lee, an economist at Goldman Sachs in Tokyo.

“The number of involuntary unemployed remains high, and we see no imminent job market recovery that would lead to improvement in wages,” Mr. Lee said in a report. “We think unemployment will probably stay at 5 percent for a while longer.”

Ongoing weakness in the labour market will likely weigh on domestic demand, which would drag prices even lower.

Core consumer prices fell 1.7 percent from a year earlier, the ministry said separately.

The key consumer prices index, which excludes volatile fresh food prices, has now fallen for nine straight months. The reading matches Kyodo’s market forecast.

Core CPI for the Tokyo area, seen as a barometer of price trends nationwide, retreated 1.9 percent in December.

Declining prices, which plagued Japan during its “Lost Decade” in the 1990s, can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.

Last week, Japan’s central bank issued its strongest language thus far on deflation, saying it would not tolerate continued price declines. The statement came after pressure from the government for a more proactive stance.

The government also said the average monthly income per household fell 0.3 percent from a year earlier. Household spending during the month, however, managed to rise 2.2 percent in November from last year.


Japan stocks hammered by Japan Airlines worries December 30, 2009