Page last updated at 11:10 GMT, Friday, 28 August 2009 12:10 UK

Japan jobless rate hits new high

By Roland Buerk
BBC News, Tokyo

Man collecting scrap cans in Tokyo
The recession is officially over, but the effect has yet to be felt

Japan's jobless rate hit a record 5.7% in July and consumer prices fell at a record pace, figures released days before a general election have shown.

Companies are continuing to lay off workers even though the economy has returned to growth after the most bruising recession for decades.

The state of Japan's economy is the key issue in the election campaign.

Opinion polls show that the governing Liberal Democratic Party faces defeat in the election.

It has held power for 53 of the past 54 years.

Recovery doubts

In July, 3,590,000 Japanese were out of work, over a million more than a year ago.

Japan's economy grew by 0.9% between April and June, but the latest figures cast doubt on the strength of the recovery.

FROM BBC WORLD SERVICE

"The recent growth was mainly due to government spending and was not a self-sustaining recovery in the Japanese economy," said Hiroshi Watanabe at Mizuho Investors Securties.

"We're unlikely to see a swift recovery for the time being," he added.

News that the unemployment rate has risen to the highest since World War II is a blow for the Prime Minister Taro Aso.

Opinion polls show his Liberal Democratic Party was already on course for defeat on Sunday for only the second time in more than 50 years.

'Deflationary pressure'

Other figures released in Tokyo show core consumer prices fell by 2.2% in July from a year earlier, the fastest pace on record.

And analysts expect prices to fall further.

"Domestic demand is pretty weak. We expect deflationary pressure to increase," said Naoko Ogata at the Japan Research Institute.

Japan is particularly sensitive to falling prices.

The country was stuck in a deflationary spiral for years after an asset price bubble burst at the start of the 1990s.

Shoppers put off purchases in the expectation of prices falling further, causing the economy to stagnate.



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