Japan's jobless rate rose to its highest in nearly six years, threatening to undermine government efforts to spur growth with stimulus spending and leaving the world's No.2 economy at the mercy of demand for its exports.
Government incentives for buyers of energy efficient cars and appliances helped lift household spending last month, surprising analysts and cementing expectations that Japan's economy will return to growth this quarter after 12 months of contraction.
But as Japanese companies keep slashing costs and freeze hiring to restore profits hit by the global crisis, analysts fear the pick-up may prove short-lived unless main export markets such as the United States recover strongly.
Policymakers from Tokyo to London and Washington face the same challenge: how to ensure that trillions of dollars committed to pull their economies out of the deepest slump since the Great Depression will have a lasting impact.
The concern is that even as business confidence recovers and companies rev up production they still have plenty of slack and jobless queues are set to swell further, threatening to dent consumer demand.
In Japan, the seasonally adjusted unemployment rate rose to 5.2 percent — the highest since September 2003 — from 5.0 percent in April as the economy lost 1.36 million jobs over the past 12 months.
"Although production is recovering, companies still have excess in production facilities and employment," said Yoshimasa Maruyama, economist at Itochu Corp. "Today's data confirms it will take a long time before they resume expanding production capacity."
So far, financial markets have largely brushed aside rising jobless numbers as a normal phenomenon at the early stages of a recovery cycle, betting that an economic upturn, albeit subdued, was around the corner.
EMERGING WINNERS
Asian stock markets rose about 1.3 percent on the last day of the second quarter, roughly matching Wall Street's gains overnight. Tokyo stocks closed 1.8 percent higher, bringing second-quarter gains to 23 percent in the market's best quarterly performance since 1995.
Emerging markets have been the big winner so far this year, with the MSCI emerging markets equities index up a third in the first half compared to a 6 percent rise on the all-country world index.
But European markets were poised for a cautious start, with investors cautious ahead of British second-quarter gross domestic product data due at 0830 GMT and the release of June euro zone flash consumer prices estimate at 0900 GMT.
The world's fifth-largest economy is expected to have contracted 2.1 percent quarter-on-quarter and 4.3 percent compared with the second quarter of 2008, while euro area consumer prices are seen 0.2 percent below year ago levels.
POST-WAR PEAK
Japanese economists expect the jobless rate to climb beyond a post-war peak of 5.5 percent in the months ahead, a shocking figure for a nation that had enjoyed decades of virtually full employment and a high level of job security.
Highlighting the heavy toll the financial crisis has taken on the Japanese industry, Japan pledged up to $1.7 billion to prop up the loss-making chip maker Elpida Memory Inc. in public and private capital and loans.
Elpida, the world's fourth-largest maker of DRAM chips, is the first Japanese company to take advantage of a scheme that makes public funds available to businesses hit by the crisis.
There were, however, signs of resilience in the region even in the face of job market uncertainty.
In Australia, which skirted recession last quarter but also saw its share of job losses, leading department store chain David Jones Ltd raised its full-year profit forecast citing strong performance in May and June.
"David Jones is a barometer for the discretionary spending sector, so if David Jones is in itself experiencing some good conditions, I don't see why the others won't get some benefit too," said Lucinda Chan, division director at Macquarie Equities.
South Korea, Asia's fourth-largest economy, also offered some encouragement, reporting a much stronger than expected jump in industrial output in May and a rise in business sentiment to a 13-month high.
