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Last Updated: Tuesday, 31 October 2006, 07:04 GMT
Fresh wobble for Japan's economy
Japanese production line worker
The strength of Japan's recovery is under question
Fears over the strength of Japan's economy have risen after unemployment rose from 4.1% to 4.2% in September.

At the same time, other data showed average monthly household spending down by 6% in September compared with a year ago, the biggest fall in five years.

The reports come a day after news that industrial output fell 0.7% last month.

Meanwhile, the Bank of Japan left its key interest rate at 0.25% after its latest meeting. The Bank ended its zero interest rate policy in July.

The Bank of Japan said on Tuesday it would gradually adjust monetary policy based on economic and price conditions.

Analysts believe this is further indication it may raise interest rates early next year.

Pay levels

Japan's economy had seen a gradual revival earlier this year after a decade in the deflation doldrums.

Accelerating growth, falling unemployment, and a strong economic performance had pushed Japan out of a deflationary spiral, and created the confidence to finally raise interest rates.

While the rate of unemployment rose in September from the month before, the figures also showed that the total number of unemployed fell by 50,000 from a year earlier to 2.8 million.

However, analysts said the recent economic figures meant that any further rate rises were likely to be postponed until the start of 2007.

NLI Research Institute senior economist Taro Saito said the sustained fall in household spending was due to the unwillingness of Japanese firms to increase pay levels.

He added: "The Bank of Japan may find it more difficult now than before to hike interest rates before the end of this year."


SEE ALSO
Japanese industrial output slows
30 Oct 06 |  Business
Japan may raise rates by year end
13 Sep 06 |  Business
Japan pegs interest rate at 0.25%
11 Aug 06 |  Business

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