Japan's jobless rate rose in June to a near two-year high and household spending fell again from a year earlier, data showed on Tuesday, in a sign of further trouble for an economy already battered by surging energy costs.
But the data did little to alter the market view that the Bank of Japan will hold off on raising interest rates for the rest of this year or longer in view of economic uncertainties at home and abroad.
"As job market conditions stall, consumer prices are rising, hurting the purchasing power of households and worsening consumer sentiment," said Naoki Iizuka, senior economist at Mizuho Securities.
"These reinforce our view that the BOJ will likely leave interest rates unchanged for a while."
The seasonally adjusted unemployment rate stood at 4.1 percent in June, up from 4.0 percent in May and matching a high marked in September 2006. It was also slightly higher than a consensus market forecast for 4.0 percent.
The Japanese government cut its assessment of job conditions, saying it would need to closely watch the outlook for the job market.
Financial markets, which largely expect the BOJ to sit tight on monetary policy for a while, reacted little to the data.
In a further sign of weakness, the jobs-to-applicants ratio for June was 0.91, meaning 91 jobs were available per 100 applicants. The ratio, in line with expectations, was down from 0.92 in May and matched a low marked in February 2005.
Japan's jobless rate fell as low as 3.6 percent in July last year, but the recovery has since stalled with corporate activity coming under threat from mounting woes such as global credit fears and rising raw material costs.
Soaring energy and food costs have hurt corporate profits and dampened consumer sentiment, heightening fears that the Japanese economy, currently in its longest postwar expansion, may be slipping into a recession.
Many economists expect Japan's economy, which logged solid growth in the first quarter, to contract slightly in April-June as the U.S. downturn and a global slowdown hurt exports.
Weakening job market conditions was also bad news for consumption, which makes up more than half of the economy.
Overall household spending, a key gauge of personal consumption, fell 1.8 percent percent in June from a year earlier, albeit less than a median market forecast for a 2.8 percent decrease.
"For the second quarter as a whole, falls in personal consumption are likely to have been relatively significant and will likely act as a factor pushing down gross domestic product," said Junko Nishioka, economist at RBS Securities.
Separate government data showed retail sales rose a slight 0.3 percent in June from a year earlier.
But the unexpected rise was mainly due to increasing fuel prices, a ministry official said, adding that if adjusted to reflect some changes in the consumer price index, June's retail sales would have been down 3.3 percent year on year.
The BOJ has kept interest rates unchanged since February last year, when it raised them to 0.50 percent, and abandoned its tightening bias in April this year.
Earlier in July, the central bank cut its economic growth forecast for the fiscal year to next April to 1.2 percent, which would be the slowest pace in six years, from 1.5 percent projected three months ago.