Japan Job Market Shows Signs of Healing Before Omicron’s Spread

(Bloomberg) -- Japan's unemployment unexpectedly fell in December, signaling that the jobs market was continuing to heal at the end of 2021 before the rapid spread of the omicron variant.

The jobless rate edged down to 2.7%, the ministry of internal affairs reported Tuesday, with the number of workers increasing by 490,000, the most since 1986. Analysts had expected the unemployment rate to hold at 2.8%.

A separate report showed jobs offers outnumbered applicants by a slightly greater margin, although there was still far more slack in the labor market than before the pandemic. There were 116 jobs offered in December for every 100 applicants, compared with 155 positions being advertised two years prior.

While the jobs market was showing signs of further healing at the end of 2021, the emergence of omicron and a sharp escalation of infections this month have dimmed the economy's prospects this quarter.

Daily infection numbers jumped from fewer than 500 at the start of January to over 80,000 nationwide and nearly half Tokyo's hospital beds are occupied, close to the threshold that Governor Yuriko Koike has said may trigger a call for a renewed state of emergency in the capital.

“The job market was gradually improving at least until December but omicron makes it hard to discern the strength of the labor market going ahead,” said economist Koya Miyamae at SMBC Nikko Securities. “Businesses may become hesitant to hire and job seekers may also choose to wait for now.”

Japan's economy is seen returning to growth in the last three months of 2021, but the rapid spread of omicron has increasing numbers of analysts citing the risk of another contraction this quarter.

What Bloomberg Economics Says...
“A drop in Japan's jobless rate in December reflected strong labor demand in the manufacturing sector, where new job offers jumped 34.6% from a year earlier. But an increase in the number of involuntary job losses points to downside risks from weakness elsewhere -- particularly in the service sector, which is most affected by virus-containment measures.”
Yuki Masujima, economist
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More damage to the recovery will set back timetables for new hiring and also weaken any impetus for wage hikes that are needed to power more robust consumer spending or spark more sustainable inflation.

A report Monday showed the biggest drop in Japanese consumer confidence since April 2020, with an expected deterioration in the jobs market registering as the biggest cause of concern.

Still, continued job retention subsidies from Prime Minister Fumio Kishida's government will likely protect employment even if the economy softens. Even during the depths of the crisis, Japanese unemployment never went above 3.1%.

“Japan's jobless rate has been almost unchanged largely due to government's fiscal support, but we are coming to a point we have to consider whether it's good for the economy in the longer term,” said SMBC Nikko's Miyamae.