Page last updated at 07:52 GMT, Friday, 30 May 2008 08:52 UK

Downbeat data on Japan's economy

Japanese shoppers
Shoppers are reining in spending

Japan's economy has shown further signs of weakness, with unemployment rising and consumer spending falling.

The unemployment rate rose to 4% in April, the highest rate since September and up from 3.8% the previous month.

Other figures showed household spending in April was down 2.7% on the year before, which was much worse than a predicted fall of 0.9%.

The annual rate of inflation slowed to 0.9% in April, but the decline was due to temporary suspension of a fuel tax.

Analysts said inflation was set to rebound to about 1.4% in May.

Tough times

Last month, Japan's central bank cut its growth forecast for the current financial year to 1.5% from 2.1%, amid continuing worries about the impact of the US slowdown on global markets.

The increase in the unemployment rate was triggered by job losses among construction firms.

"Amid a slump in the economy, conditions of employment are not improving," said Keiji Kanda, an economist at think tank Daiwa Institute of Research.

"The number of employees in the manufacturing sector is declining as companies are reluctant to hire people."

Analysts said consumer spending had fallen as people began to tighten purse strings because of rising food and energy prices.

With inflation expected to rebound in May, there is speculation that Japanese interest rates may rise from their current level of 0.5% in the months ahead.

"Prices are rising, but we need to note that they are hurting consumer sentiment at the same time," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Markets are worried about inflation and talk about a rate hike, but any premature rate rise could bring down the economy, so that should be tackled with a balanced approach."

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