Unemployment in Japan Will Be Above 6% by August

Since the beginning of 2009, the unemployment rate in Japan has been on rise. The Statistical Bureau of Japan has just announced a severe increase in the (seasonally adjusted) unemployment rate up to 5.2% in May. There was only 4.1% unemployment in December 2008.

We had predicted that effect in our early paper [1] and confirmed the prediction in the detailed study of unemployment in Japan [2]. The most recent estimate of the linear link between the unemployment rate and the change in the labor force participation level gave the following relationship:
UE(t)= -1.5*dLF(t)/LF(t) +0.045 (1)

where UE is the unemployment rate at time t, LF is the level of labor force at the same time. Thus, there is no time delay between the change in the LF and UE, as it observed in many developed countries [3,4].

As with any quantitative prediction of future time series, one can check and validate the underlying relationship using new data. Figure 1 compares the measured unemployment rate in Japan to that predicted from (1). Relevant labor force estimates are also retrieved from the Statistical Bureau's table.

Between 1999 and 2008, the prediction is excellent considering the accuracy of both unemployment and labor force measurements. The deviation between the curves observed in 2008 is the largest. However, it does not influence the accuracy of the 2009 prediction, which is definitely outstanding in terms of dynamic resolution. The dramatic increase in unemployment rate is well predicted by relevant fall in the level of labor force; the slope in (1) is negative. Because of the absence of time delay between these two variables, it is difficult to distinguish between action and reaction. Our previous investigations indicate that the change in labor force in the primary source of the change in unemployment and inflation [3,4].

Figure 1 demonstrates that the rise in unemployment is not finished yet and it may reach 6% in August 2009. Since the labor force estimates are contemporary to the unemployment one, we can not stretch them into 2010. However, labor force projections for Japan show that the unemployment will approach 5% in the long run, as depicted in Figure 2 borrowed from [2].

Figure 1. Comparison of observed and predicted unemployment rate in Japan.

Figure 2. Unemployment rate projection for Japan between 2010 and 2050 [2].

References

[1] Kitov, I., (2006). The Japanese economy, MPRA Paper 2737, University Library of Munich, Germany, ideas.repec.org/p/pra/mprapa/2737.html
http://mpra.ub.uni-muenchen.de/2737/01/MPRA_paper_2737.pdf

[2] Kitov, I., (2007). Exact prediction of inflation and unemployment in Japan, MPRA Paper 5464, University Library of Munich, Germany,
ideas.repec.org/p/pra/mprapa/5464.htmlhttp://mpra.ub.uni-muenchen.de/5464/01/MPRA_paper_5464.pdf

[3] Kitov, I., (2007). Exact prediction of inflation and unemployment in Germany, MPRA Paper 5088, University Library of Munich, Germany,
ideas.repec.org/p/pra/mprapa/5088.html
http://mpra.ub.uni-muenchen.de/5088/01/MPRA_paper_5088.pdf

[4] Kitov, I., Kitov, O., (2009). Unemployment and inflation in Western Europe: solution by the boundary element method, MPRA Paper 14341, University Library of Munich, Germany, http://mpra.ub.uni-muenchen.de/14341/01/MPRA_paper_14341.pdf

Comments

[Mad Hedge F...:]

Or more. It’s sad to see a once great country fall on hard times. It’s like watching a formerly leading hedge fund manager apply for food stamps. I’m talking about Japan, which in 1989 boasted the world’s most valuable stocks, largest banks, and strongest currency. Oh, how the mighty have fallen. This week the Ministry of Finance published the trade figures for May showing a 42% YOY drop, and that the cataclysmic fall in exports continues unabated, as foreigners keep their money in their pockets instead of buying high quality cars and electronics. Even exports to China fell 29.7%. I’m sure the chart below will be found in business school textbooks for decades to come as proof of the risks of running an overly export dependent economy. Although a giant fiscal stimulus package will start to hit in the second half of this year, most economists have GDP forecasts for the year of minus 6.8% or worse. This would take GDP back to the 2004 level, and make our economy look positively bubbliscious by comparison. This is all happening when the numbers of those retiring is going through the roof, causing welfare payments to skyrocket. Taking a page out of Obama’s playbook, the government is borrowing to meet these costs, so the national debt is expected to reach the certifiable nosebleed territory of 197% by next year! Prime Minister Taro Aso has so far fought off increased consumption taxes, but it is just a matter of time before those efforts are tossed out the window. Continued deflation is a no brainer. Real estate prices are still stuck at 30% of their 1990 levels. This is what an “L” shaped recovery looks like up close and ugly. In the meantime, the yen strengthens, making exports ever more expensive and uncompetitive. Better to stand aside from the Land of the Rising Sun and watch with tears. Is the US next?

Jun 30 05:23 PM

[Ryu Mei Co:]

I live in Japan and the job report for 18 - 25 are even as high as 15%.

Also, there are a surge of Chinese and foreign workers in Japan recently. I do not have the statistics to back it up. But apparently, companies are cutting cost by hiring immigrants and foreign students at below hourly paid. There were already a few pockets of young Japanese protesters all over Japan demanding more jobs and opportunity to the government.

Japan will see 2 years of deflation according to MOJ. Imagine this, Japan has already been in zero or negative GDP growth for the past decades due to liquidity trap. If US were in a liquidity trap, then your "green shoots" are nothing but weeds that will never go away for decades.

Jul 03 10:55 PM

[Ivan Kitov:]

Thank you for valuable information.
My prediction of unemployment and inflation is completely relies on the measured level of labor force in developed countries. Therefore, and change not covered by offcial statistics, as represented by foreign students and immigrants, is still influential in real terms but not counted in by the model. As a result, the prediction of 6% unemployment rate might be biased up because the labor force has not been declining so fast as reported by offcial statistics. I wonder that actual rate will be below 6% in August.

Jul 04 03:06 AM