Unemployment in Japan rose to 4.0 percent last month, reinforcing expectations the Bank of Japan will delay its next rate rise, but household spending jumped.
Japan's seasonally adjusted unemployment rose to 4.0 percent as more young people sought work, making it the second straight month of rises since it hit a nine-year low of 3.6 percent in July.
The readings, coming a day before the Bank of Japan's (BOJ) next rate review and an economic outlook report, supported expectations that the BOJ will wait until early next year to raise rates.
Finance Minister Fukushiro Nukaga said the jobless numbers showed job conditions were somewhat weak, and analysts said this should concern the central bank.
"The job figures aren't good news for the Bank of Japan as they cast doubt on its scenario that economic slack will slowly disappear and push up prices," said Hiroshi Shiraishi, an economist at Lehman Brothers. "The improvement in job conditions seems to be stalling, and there is a
possibility for the situation to get worse ahead."
Financial markets showed a limited reaction to the data, which follows a stream of soft economic figures for Japan.
Analysts were more upbeat over the household spending for September -- which rose 3.2 percent from a year earlier, more than double the 1.3 percent rise expected by analysts.
While a government official said special factors pushed up this figure and the underlying trend was more around 1.7 percent growth, analysts said the key consumption figure should help ensure Japan avoided a second quarter of economic contraction.
"The economy is likely to post a modest growth in July-September from a contraction in April-June, and that's a plus for the BOJ policy," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute. "But the BOJ has no choice but to act cautiously due to uncertainty over development of subprime woes and the outlook for the U.S. economy. It will be difficult to raise rates this year."
Troubles in the U.S. housing sector and subsequent market shake-out around the world since August have raised concerns that Japan's export-led economic expansion could sputter into recession.
Japan's exports in September to the United States, it's second-biggest export destination behind China, fell from a year earlier at the fastest pace in four years.
The BOJ is seen cutting its growth and inflation forecasts and stressing more the downside risks in its twice-yearly report due at 3 p.m. local time Wednesday. "The main focus is how the central bank will view risks from the global economy," Tsunoda said.
Expectations of when the BOJ will raise rates have been pushed back further in recent days. Swap contracts on overnight call rate are pricing in less than a 20 percent chance of a rate hike this year and just over a 50 percent chance by March.
But the BOJ will likely reinforce its message that it wants to eventually raise interest rates to more normal levels as consumer prices start rising on the back of economic growth.
The bank has also said tight job conditions should eventually push up wages, boosting inflationary pressure.