Oct. 31 (Bloomberg) -- Japanese household spending fell more than expected in September and the economy failed to produce enough jobs for the people seeking work, suggesting an export-led recovery isn't increasing demand at home. Spending by households headed by a salaried worker fell a seasonally adjusted 0.9 percent from August, almost twice the 0.5 percent decline that was the median of 19 economists' forecasts in a Bloomberg News survey. Unemployment held at 5.1 percent as 10,000 jobs were created for 60,000 extra people seeking work, the government said in Tokyo. Lower wages and reductions in health benefits are hurting consumer spending, which makes up more than half of Japan's economy, and sapping a recovery from the third recession in 12 years. Sony Corp. this week announced 7,000 job cuts in Japan, and retailer Daimaru Inc. forecast a drop in full-time workers.
``Companies continue to cut costs, replacing full-timers with part-timers,'' said Eishi Yokoyama, an economist at AIG Global Investment Corp. ``The outlook on consumer spending remains quite weak.'' Shares of Seven-Eleven Japan Co., Daimaru Inc. and other companies that depend on domestic demand fell. The Nikkei 225 Stock Average fell 1.3 percent to 10,559.59 at the 3 p.m. close of trading in Tokyo. Japanese consumer prices will decline for a seventh fiscal year, Bank of Japan policy makers projected today, adding that they are committed to the 2 1/2 year-old policy of zero interest rates to end a bout of deflation that has eroded corporate profits and boosted the value of debt.
Monetary Policy
Nationwide core consumer prices, excluding fresh food, will probably fall 0.3 percent in the year ending March 31, 2005, according to the median forecast of the bank's nine board members. At a meeting earlier today, policymakers voted unanimously to hold rates at zero and to keep buying 1.2 trillion yen ($11 billion) of bonds from banks each month to pump money into the economy. Capital spending by exporters such as Sharp Corp. and Canon Inc. fueled Japan's 1 percent economic growth in the second quarter. Growth probably slowed to 0.1 percent in the third quarter as consumer spending and retail sales faltered, economists said in a Bloomberg News survey last week ahead of a Nov. 14 government report. ``The recovery is centered on exporting manufacturers, and how that will ripple into labor or consumption is an issue that needs to be answered,'' Seiji Murata, vice minister of economy, trade and industry, said at a press conference yesterday.
More Job-Seekers
Sony, the world's second-biggest consumer electronics maker, said Tuesday it would cut 20,000 jobs, or 13 percent of its global workforce over three years, as it seeks to cut costs and close down unprofitable cathode-ray television plants in Japan. The cuts include 7,000 jobs in Japan. Daimaru, Japan's fourth-largest department-store operator by sales, is cutting costs by replacing full-time workers with part- timers. Daimaru said in April it would increase part-time jobs by 16 percent to 2,659, and cut full-time jobs by 100 to 4,131 this year. ``For retail sales to improve, there has to be a fundamental improvement in job conditions,'' said Shinji Kikuchi, head of research at the Japan Department Store Association, whose members include Daimaru. ``Falling wages and a jobless rate hovering around 5 percent don't meet that condition.'' Six quarters of economic growth and a 35 percent rebound in the Nikkei stock average in the past six months have encouraged more Japanese to seek work. The economy isn't growing fast enough to generate jobs for all of them. There were 66 jobs for every 100 applicants in September, according to a separate report today. The ratio rose for a fourth month to the highest since December 2000.
Wages
``Sentiment has improved far more than what's actually going on in the labor market,'' said Seiji Adachi, an economist at Credit Suisse First Boston Securities Japan Ltd. ``This may set up a situation where the jobless rate rises in coming months.'' Poor job prospects and falling wages are curbing consumer spending on clothes, consumer electronics and food, another government report this week showed. Retail sales fell 0.7 percent in the third quarter. Wages in August had their biggest decline this year, and the government in April raised workers' contributions to their health- care costs to 30 percent from 20 percent. Tokyo's core consumer prices, which exclude fresh food, fell 0.1 percent from a year earlier, another report said today. Nationwide core prices fell 0.1 percent in September from a year earlier. They haven't risen since April 1998. ``There's no change in our stance that deflation remains persistent,'' economy minister Heizo Takenaka told reporters after the price report was released.
Yen Gains
The yen's 9 percent gain against the dollar this year threatens to deepen deflation by lowering prices of imported goods. A stronger currency also hurts exporters by reducing their profits when converted into yen. The yen weakened at 108.98 to the dollar as of 3:58 p.m. in Tokyo from 108.74 yesterday in New York, when it had its biggest drop in a week. Falling prices and sales are prompting department stores to close unprofitable outlets. Mitsukoshi Ltd., Japan's third-largest department store operator, said the 1.2 billion yen cost of closing seven outlets contributed to a 20 percent drop in profit in the six months to Aug. 31. //www.bloomberg.com