”The trend shows hiring is slowing for the moment especially among small businesses, while big corporations continue to recruit new employees briskly,” said Yoshiki Shinke, senior economist at Dai-ichi Life Research.
Overall household spending fell 1.6 per cent in March from a year earlier in price-adjusted real terms, countering a median market forecast for a 0.5 per cent increase and further signalling weak consumer spending.
Such weakness in the domestic economy will likely keep the BOJ concerned about downside risks in coming months. Still, like other central banks, the BOJ faces rising fuel, raw materials and food prices as it ponders what to do with rates, already at a very low 0.5 per cent. Japan’s core annual inflation rate hit a decade high of 1.2 per cent in March, and as the expectation grows that the Federal Reserve’s easing cycle is coming to an end after one more 0.25 percentage point cut last Wednesday, markets are now even pricing in the possibility of a BOJ rate hike. Swap contracts on the overnight call rate are pricing in around a 60 per cent chance of a rate hike by the end of the year.
That is a sea change from just a few weeks ago when investors had been looking for a BOJ rate cut as the credit crisis weighs on global economic growth. Still the evidence and justification for expecting any such cut is rather thin.
Housing starts, hit hard by a regulatory change last year, are hardly giving cause for great optimism since they fell 15.6 per cent in March from a year earlier, below a median market forecast for a 6.7 per cent drop.
Also, the NTC Research/Nomura/JMMA Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, declined to a seasonally adjusted 48.6 in April from 49.5 in March and was the lowest since 48.1 in February 2003. A reading below 50 points to a contraction in manufacturing activity.
