AFP - Japan's jobless rate hit a more than four-year high as deflation returned to haunt the world's number two economy, which is reeling from its worst slump since World War II, data showed Friday.
Asia's largest economy is likely to see a further rise in unemployment, threatening to further depress consumer spending, as companies such as Sony and Toyota slash jobs in an effort to recover from huge losses, analysts warned.
Japan's jobless rate jumped to 4.8 percent in March, the highest level since August 2004, as the total number of unemployed surged by about 670,000, or 25 percent, from a year earlier to 3.35 million in March.
It shot up from its February level of 4.4 percent, heading towards a post-World War II high of 5.5 percent, last seen in April 2003.
There are glimmers of hope that Japan's export slump may be easing, but the government warned that a rapid recovery was unlikely.
"The main cause of the slowdown in the Japanese economy is the decline in exports. I don't think it will recovery easily," said Finance Minister Kaoru Yosano.
Japan's auto and high-tech giants have announced massive job cuts in recent months as they sink deep into the red due to the slump in exports.
Many temporary workers were laid off at the end of the fiscal year to March 31 and there are fears that the unemployment rate will rise further.
"Exports and production have shown signs of hitting bottom but the labour market may sink further. There is concern that this might affect consumption," said Hideyuki Araki, economist at the Resona Research Institute.
"Consumer prices may continue to edge lower. There are worries that worsening job conditions may weigh down consumer spending."
Fears of a return to deflation grew as core consumer prices suffered the first year-on-year fall in 18 months in March, slipping 0.1 percent.
Japan was stuck in a deflationary spiral for years after its economic bubble burst in the early 1990s, eroding corporate earnings and encouraging consumers to delay their spending in the hope that prices would fall further.
Inflation hit a decade-high 2.4 percent briefly last year but has since evaporated against a backdrop of falling energy costs and weak domestic demand, amid the country's worst recession in decades.
Japanese consumer spending fell for a 13th straight month in March, down 0.4 percent from a year earlier, the government said.
With Japan's benchmark interest rate already at 0.1 percent, the central bank has limited ammunition left to stop prices from falling.
Japan's central bank has warned that Asia's biggest economy faces two years of deflation, with consumer prices expected to drop 1.5 percent this year and 1.0 percent the following year.
Yosano, however, said it was "too early to say the economy has swung into deflation" based on the March figures alone.
Japan's economy suffered a brutal annual contraction of 12.1 percent in the last three months of 2008, putting it on course for its deepest recession since World War II. Analysts say this year's first quarter may have been even worse.
But some of the more optimistic forecasters expect a return to positive growth in the second quarter, which could make Japan one of the first major economies to exit recession, even if prospects for a full recovery remain dim.
Analysts note that Japan's economy saw plenty of false dawns during its so-called "lost decade" of stagnation and deflation in the 1990s.