Japan's jobless rate hits record 5 percent

By CNN's Geoff Hiscock
Asia business editor

TOKYO, Japan (CNN) -- Japan's stagnant economy has taken another hit with the release of figures showing a record jobless rate of five percent last month.

The bleak jobs outlook is a further indicator of the "no pain, no gain" reform agenda being pursued in the world's second largest economy by Prime Minister Junichiro Koizumi.

Koizumi, who enjoys record public popularity, has stressed that job losses are an inevitable by-product of his aggressive program of economic reform.

AUDIO CNN's Rebecca MacKinnon on Japan's record unemployment rate 1.7 MB / 2 mins 41 secs WAV sound

Koizumi is trying to get the economy moving again and has promised a tough approach that includes tackling the massive bad loans weighing on Japanese banks.

Japan's Ministry of Public Management, Home Affairs, Posts & Telecommunications said Tuesday the number of jobless in July was 3.3 million, up 230,000 or 7.5 percent from the previous year.

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It is a rise of 0.1 percentage points over June and is the highest figure since 1953, according to the Kyodo wire service.

The dismal unemployment figure follows the announcement of heavy job cuts by many large Japanese corporations in recent days. The latest was by Toshiba on Monday, when it said it would trim 17,000 people from its Japanese workforce by March 2004.

Toshiba's industry counterparts Fujitsu and NEC have already announced total job cuts of more than 20,000, and Hitachi is expected to follow suit this week.

Figure expected to climb in months ahead

Merrill Lynch chief economist in Japan Jesper Koll told CNN television that he expected the jobless figure to climb by about 0.1 percentage points every month until mid-2002, when it would be just below 6 percent.

He said that over the next six to nine months, few new jobs would be created, despite the incentives offered by Koizumi and a supplementary budget expected in the next few weeks.

Koll said job-shedding would outpace job-creation, as was normal in an economy undergoing restructuring.

But he said deregulation of the services sector would rekindle the entrepreneurial spirit in Japan and by mid-2002 would be having a positive effect.

Koll called the jobless figure both a "challenge and a chance" for Koizumi.

Industrial recession 'accelerating'

He said Japan was in a deep industrial recession that was accelerating. The transition to an economy focused on the service sector would take some time, but the result would be positive for the nation.

In the meantime, the jobless figure of 5 percent means that the government will use emergency funds to subsidize companies hiring new workers over the next six months.

The government figures released Tuesday show Japan's workforce in July numbered 64.52 million, down 370,000 or 0.6 percent from a year ago.