Japan's June unemployment rate likely to temporarily rise

The number of job seekers that dropped out of Japan's labour force increased in March and April. This led to a technical improvement in the unemployment rate, but it probably does not reflect the real situation of the labour market. 

"The Japan unemployment rate is expected to temporarily rise back to 3.4% in June. In June, more job-seekers are expected to return to the labour force but they will not be able to be absorbed by the increase in the employment number in the short term", says Societe Generale. 

However, both the manufacturing and non-manufacturing sectors are feeling the labour shortage, and are stepping up hiring. The unemployment rate is expected to continuously remain below 3.5%, corresponding to the NAIRU level. 

"However, if this situation fails to materialise, the BoJ's 2% price stability target will be difficult to achieve. The unemployment rate needs to fall below 3% for the target to be met, but this level currently seems very far away. The job-to-applicant ratio is likely to remain at 1.19 in June, the highest level since 1992", added Societe Generale.