By Yoshiko Matsushita and Daisuke Takato, with reporting by Ann Saphir and Naoko Fujumiura
Tokyo, Nov. 30 (Bloomberg) -- Japan's jobless rate rose to the highest in almost half a century and may top 6 percent next year as companies fire workers to cope with falling demand and prices. The yen rounded out its third losing month as the government said the jobless rate rose to 5.4 percent last month. That capped a week of bad economic news, in which Japan's credit rating was cut a notch and a report showed factory production at a 13-year low last month. Companies such as Isuzu Motors Corp. and West Japan Railway Co. are dumping thousands of workers. Manufacturers, including Sony Corp., are reducing prices and need to cut costs to underpin earnings. That has led seven economists surveyed by Bloomberg News to forecast the jobless rate will reach 6 percent by the middle of next year, double the rate of six years ago. ``Companies can't sustain growth without firing staff,'' said Sadaharu Nagumo, who helps manage $161 million in assets for Japan Investment Trust Management Co. ``The jobless rate is going to keep rising.'' The number of people out of work rose to 3.6 million last month, the most since records were first kept in 1953. Consumer prices in Tokyo, excluding fresh food, dropped 1 percent this month from a year ago, government figures showed. The only bright spot was a report today showing spending by households headed by a salaried worker rose 3.1 percent last month from September. From a year ago, spending increased 1.6 percent, the first gain in seven months.

Stocks Fall
The yen was recently trading at 123.90 to the dollar, from 123.86 in New York late yesterday. It has dropped 1.2 percent this month. The worsening economy is putting pressure on Prime Minister Junichiro Koizumi to delay plans to slash public works spending and clean up bad loans at banks, steps that would initially make the pain worse and drive up spending on unemployment benefits. Koizumi today said an increase in unemployment ``can't be helped, as we're trying to carry out reforms.'' The increase will be temporary, he said. ``Japan is caught between a rock and a hard place,'' said Paul Sheard, chief Asia economist at Lehman Brothers Japan Ltd. ``If they push ahead with structural reform, that's going to cause additional government spending. If they don't take more resolute action, the situation will begin to catch up with them.'' Standard & Poor's and Fitch IBCA Duff & Phelps both cut their rating on Japan's bonds one notch to ``AA'' this week, saying Koizumi has been too slow to act on election promises to end the 11-year slump.

More to Come
At 5.4 percent, Japan's jobless rate is the same as the U.S., though still less than Germany's 9.5 percent, Italy's 9.2 percent and France's 8.9 percent. Japanese companies have announced more than 150,000 job cuts this year, a break from tradition in a country where a job was usually for life. Isuzu, the Japanese truck-maker controlled by General Motors Corp., on Monday said it will cut 12,700 jobs, or about one third of its workforce. NSK Ltd., an auto-parts bearing maker, said last week it will cut 2,500 jobs. JR West, Japan's third-biggest railway operator, earlier this month said it will slash 9,000 jobs by April 2005 as it cuts costs to increase profit amid stagnating sales. ``This is just the beginning,'' said Yukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd., who forecast the jobless rate will reach 6 percent by the middle of next year. ``Spending is set to fall, pushing Japan to the edge of a deflationary spiral.'' Manufacturing companies, which employ about a fifth of Japanese workers, cut 120,000 jobs last month. Transport and telecommunication firms shed 240,000 workers and the services industry dumped 40,000. The total number of people working fell by 1.03 million from a year ago to 64.1 million, the biggest drop since 1974. Full-time workers fell 1.4 percent to 46.3 million, while day laborers rose 21.4 percent to 1.25 million. Job offers also fell last month. Only 55 positions were available for every 100 applicants at government-run job agencies, down from September's 57. That's the lowest since April last year.

Falling Prices
In Tokyo, consumer prices, excluding fresh food, declined by 0.2 percent this month from October. Prices in the capital, home to a tenth of Japanese, fell 1 percent from a year ago, the 26th decline from year-earlier levels. The need to cut prices to stay competitive is eating into sales, forcing companies to cut costs by lowering wages or eliminating jobs. Taisho Pharmaceutical Co., Japan's biggest maker of non-prescription drugs, said sales of over-the-counter medicines are falling as rivals offer cheaper alternatives. Sony, the largest video-game maker, yesterday lowered the price of its PlayStation2 video game console by about 15 percent to boost sales before the introduction of rival Microsoft Corp.'s Xbox console next year in Japan. The Bank of Japan's attempts to combat deflation by paring interest rates to close to zero and pumping trillions of yen into the money market to prod banks into lending has had little effect. Yesterday, BOJ kept the policy on hold. ``The Bank of Japan has no options left to stop deflation, and prices will continue to fall,'' said Keisuke Naito, senior economist at Mizuho Securities Co. ``They can try setting an inflation target, but they don't have any policies to fulfill that goal.''