Japan’s unemployment rate has climbed to its highest level in more than year, raising new questions about the strength of its labor market and the future of the Bank of Japan’s monetary policy.
According to official data, the unemployment rate rose to 2.6% in August, up from 2.3% in July, surpassing economist expectations of 2.4%. The job-to-applicant ratio also slipped to 1.20, meaning there were 120 job openings for every 100 job seekers. This marks the lowest ratio since 2022 and hints at a cooling job market.
Experts say the strong labor market may be starting to lose momentum. Economists point to global trade tensions and tariffs as factors reducing job opportunities, especially in part-time roles, but now impacting full-time positions as well.
Despite the slowdown, Japan still faces chronic labor shortages. Companies are being forced to raise wages to attract workers, with major firms offering increases above 5% earlier this year – the largest in more than three decades. Rising wages and steady inflation remain key conditions for the Bank of Japan to consider a rate hike, with the next policy decision scheduled for October 30. Market speculation is growing that the central bank may tighten policy as early as this month.
The labor report also highlighted record numbers of women entering full-time employment, with 13.6 million working in August – the highest since records began in 2013. However, economists warn that relying on women and older workers to fill gaps in becoming increasingly difficult.
At the same time, labor shortages are creating serious business challenges. From January to August, 237 companies went bankrupt due to a lack of workers, a 22% increase compared to last year. Many cited rising wage pressures as a key factor.
To offset these shortages, Japan is turning to foreign workers. A record 2.3 million foreign employees were active in the workforce last year. Still, immigration remains a sensitive political issue. As the ruling Liberal Democratic Party prepares for its leadership vote, candidates are divided on whether Japan should further open its doors to foreign labor.
While industries are calling for more support, public opinion remains cautious. The outcome of Japan’s leadership race may play a key role in shaping labor policies, foreign worker regulations, and the country’s broader economic direction.
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