Japan's jobless rate fell to a nine-year low in April while the availability of jobs improved for the first time in nine months, signaling a tight labor market and boosting the Bank of Japan's case for a rate increase.
Separate data on Tuesday showed that household spending rose much more than expected, suggesting that consumption held up well in April after robust growth in the January-March quarter, although retail sales shrank from a year ago.
Taken together, the data supported expectations that the Bank of Japan could raise interest rates sometime after August, helping lift two-year Japanese government bond yields to a 10-year high.
"The Bank of Japan has been saying wages will rise as labor market conditions tighten," said Yasuhiro Onakado, chief economist at Daiwa SB Investments. "So the data must have helped them to be more confident with that view."
Japan's seasonally adjusted unemployment rate fell to 3.8% in April, against a market consensus forecast of 4.0%. Japan's jobless rate had been steady at 4% since November.
The jobs-to-applicants ratio unexpectedly improved to 1.05 in April -- meaning 105 jobs were available for every 100 applicants -- compared with 1.03 in March. Economists had expected it to stay flat at 1.03.
Although the ratio had been sliding after hitting a 14-year peak of 1.09 in July, economists said the decline was due to a government crackdown on unlawful hiring, adding that many companies felt labor was in short supply.
The government said labor conditions were "showing an improvement," raising its assessment.
The view that the labor market will tighten further is behind the Bank of Japan's thinking that inflationary pressure should build up eventually, even though prices have fallen in recent months.
The BOJ has said the rise in the core consumer price index is likely to accelerate slowly in the next two years and that interest rates must be raised accordingly.
Household consumption showed signs of strength after weakness in the July-September quarter last year.
Overall household spending rose 1.1% in April from a year earlier in price-adjusted real terms, against a median market forecast of a 0.2% increase.
Compared with March on a seasonally adjusted basis, it rose 0.6%, government data showed on Tuesday.
Separately, Japanese retail sales fell 0.6% in April from a year earlier, government data showed on Tuesday, lower than economists' median forecast for a 0.4% fall.