Japan's jobless rate falls to 2.4% in September, below the 2.5% forecast

A tight labour market sits beside core inflation of 2.1% and keeps the case for further Bank of Japan rate rises intact, even as factory output weakens.

Japan's unemployment rate came in at 2.4% in September, a tenth of a point below what forecasters expected. The beat is small, and it changes nothing alone. What matters is the company it keeps.

Core consumer prices rose 2.1% in September, in line with forecasts and up from 1.7% in August. Headline inflation also ran near or above 2%, and consumer confidence ticked marginally higher. Together with a tight labour market, that supports the Bank of Japan's case for continued tightening, and the bond market has been pricing it. The two-year government bond yield has reached its highest since 1995 on bets on further rate rises, Bloomberg reported, and the 10-year yield rose 10 basis points as global yields climbed, after touching a 28-year high earlier that week. The steady climb in long-dated yields through September and October owes more to the bank's signalling than to any single labour print.

The real economy is less convincing. August industrial output was revised to a fall of 2.4%, deeper than first reported, and capacity utilisation fell 4.2% against expectations of a 0.5% gain. Retail sales rose 2.7% from a year earlier, below forecasts and slower than in July. Jobs and prices are firm; production and spending are not. That mix leaves the bank tightening into patchy demand, and it is why yields, not the unemployment rate, are the thing to watch.

The government has not tried to talk yields down. Prime Minister Takaichi said Japan would respond quickly to unexpected shifts in the economy or markets, while economy minister Kiuchi said the government is not pursuing reflationary policy and that loose monetary and fiscal policy is not what Japan needs now. That is words, not action, and the last confirmed yen intervention dates to July.

For US investors the link is indirect. It runs through yen funding and Japanese bond yields, not through any direct channel into American equities.