A batch of economic indicators released in Japan on Friday offered glimpses of both hope and doubt, underscoring ongoing questions about the fate of the still-fragile recovery.
The jobless rate and consumer prices were better than analysts' expectations and suggest the economy is strengthening. But household spending and retail sales tumbled as consumers tightened budgets.
Japan's seasonally adjusted unemployment rate fell to 4.9 percent in December, the government said. The result beat Kyodo news agency's average market forecast of 5.1 percent and indicates that the labor market may be starting to benefit from improving corporate profits.
The result marks the first time the unemployment rate has dropped below the 5 percent level in 10 months.
In a separate report, the government said consumer prices fell for the 22nd straight month, though the pace of decline eased.
The key consumer price index, which exclude volatile fresh food prices, fell 0.4 percent from the previous year — the slowest retreat since 2009.
The figures come a day after Standard & Poor's cut Japan's credit rating for the first time in almost nine years, issuing a harsh critique of the government's ability to control its ballooning debt. The move was a stern reminder of Japan's lousy fiscal health, as well as its lackluster growth prospects amid persistent deflation and a rapidly aging population.
The agency expressed little confidence in Japan's political will to make meaningful long-term fixes.
Prime Minister Naoto Kan said Friday he is well aware of the importance of fiscal restraint. The Japanese leader is advocating tax and social welfare reforms even as he pushes to pass a record 92.4 trillion yen ($1.1 trillion) budget for the next fiscal year starting April 1.
"What is important is maintaining fiscal discipline and market confidence in our country's fiscal management," Kan said in a parliament session.
In the short term, the central bank expects Japan's economy to gradually find its footing again and return to a "moderate recovery path" in tandem with a growing global economy. Finance ministry data Thursday showed that Japan's export growth accelerated for the second straight month in December.
The Bank of Japan upgraded its economic outlook for the fiscal year ending March 31. It now expects real gross domestic product to expand 3.3 percent. It predicts the core consumer price index will begin heading north soon and predicts a 0.3 percent rise in the year through March 2012.
Friday's jobs and price data lend support to the central bank's view.
The number of jobless in December stood at 2.98 million, down 6 percent from the previous year, according to the Ministry of Internal Affairs and Communications. Those with jobs rose 0.1 percent to 62.28 million.
The preliminary core CPI for the Tokyo area -- considered an indicator of broader price trends for the country -- fell 0.2 percent for December.
Deflation raises individual purchasing power but is generally bad for the overall economy, as it cuts into company profits and can trigger job and wage cuts. It also means that even at zero, real interest rates are too high.
Despite some progress, consumers cut back in December, particularly after the expiration of government subsidies for energy efficient car purchases.
Household spending in December was down 3.3 percent from the previous year, the government said. Retail sales fell 2 percent on year, according to the trade ministry.
Although exports have driven Japan's recovery, private consumption is a critical part of the economy, accounting for around 60 percent of GDP.
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