JAPAN’S job market remained tight in January, keeping pressure on companies to pledge solid wage increases in annual negotiations currently underway with labour unions.

The unemployment rate fell to 2.4 per cent from a revised 2.5 per cent a month earlier, the Ministry of Internal Affairs reported on Friday (Mar 1), sliding to the lowest level since early 2020. The outcome was in line with economists’ consensus estimates.

Another report from the labour ministry showed the job-to-applicants ratio held steady at 1.27 in January, matching the median estimate by analysts.

“Upward pressure on wages is very strong with the labour market remaining tight,” said Takeshi Minami, economist at Norinchukin Research. “There just aren’t enough workers, and companies are trying to secure manpower by raising wages, especially for young people.”

Japan’s chronic labour crisis, which has been brewing since the working-age population peaked in 1995, is worsening as the ageing and shrinking of the population accelerates.

The Bank of Japan (BOJ) said in its January outlook that labour market conditions will probably continue to tighten, putting more upward pressure on wages. The BOJ is watching the annual wage talks as it mulls ending its negative interest rate policy with Japan’s first hike since 2007.

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Some BOJ watchers expect that move to come as early as March, just after the initial results of those wage negotiations are announced. This year’s results are largely expected to beat last year’s at big companies, which announce their results before smaller companies.

More than two-thirds of small- and medium-sized businesses say they face labour shortfalls, one survey found, and the number of bankruptcies attributed to manpower constraints reached a record high last year, according to a report by Teikoku Databank.

Japan’s economy slipped into recession at the end of last year and a sharp drop in industrial production is likely to weigh on its recovery in the current quarter. BLOOMBERG