• Prior was 2.6%
• Jobs-to-applicants ratio 1.18 vs 1.19 expected
• Prior ratio 1.19

Japan’s unemployment rate held at 2.6% for four consecutive months through December, up from 2.4% in June and a cycle low of 2.2% in mid-2024. While 2.6% remains low by international standards, the gradual upward drift represents a notable shift in a labour market that had been tightening steadily since the pandemic and that continued in January with a 2.7% reading.

The jobs-to-applicants ratio reinforces the picture of modest cooling. The December reading edged up to 1.19 from 1.18 in October and November — the lowest level since January 2022. The ratio peaked above 1.30 in late 2023 and has declined steadily as employers grow more cautious amid elevated input costs, even as structural labour shortages persist.

That tension between cyclical softening and structural tightness defines the current labour market. Japan’s working-age population has fallen 16% from its 1995 peak and the Bank of Japan’s Tankan employment diffusion index reached -35 in mid-2025, indicating shortages near three-decade extremes. Yet new job openings have contracted on a year-over-year basis for several months, suggesting firms are managing headcount more conservatively despite difficulty filling existing roles.

Wages remain the critical variable for monetary policy. The 2025 spring negotiations (shunto) delivered headline increases of 5.46%, the strongest outcome since the early 1990s, and nominal wage growth has been positive for more than two consecutive years. However, persistent inflation — driven largely by food prices — has eroded most of those gains, with real wages only recently returning to flat on a year-over-year basis. This dynamic sits at the centre of the BOJ’s policy deliberations: durable real wage growth is a precondition for further rate normalisation. The January employment data will be closely watched for signs of whether the labour market’s gradual loosening is stabilising or accelerating.

In terms of markets, the Japanese jobs numbers are ones that rarely move the market.That’s unusual in the FX world but Japan has had ultra-low unemployment forever.

This article was written by Adam Button at investinglive.com.