How Japan Job Growth Could Lift Yen
                                                             by Yuka Hayashi

    Even as the Japanese economy is growing stronger, the yen has weakened against major currencies. The nation's ever-tighter job market may be what it takes to drive the yen higher.
    Down about 3% against the dollar and 6% against the euro this year, the weak Japanese currency has aided the country's auto makers and other exporters by making their products more competitive overseas. The weak yen also has been a boon to investors who partake in the so-called carry trade, which, in this use, involves borrowing yen at Japan's low interest rates and selling them to acquire investments denominated in higher yielding currencies.
    As exports of Japan's core manufacturing products boom, big corporations are taking on more workers. Japan's unemployment rate fell to 3.8% in May, falling below 4% for the first time in nine years, and stayed at that level in June.
    Employment is approaching a level that could end more than a decade of superlow Japanese interest rates -- and the recent yen weakness that low rates have triggered. Economists say a key level for unemployment is 3.5%. If the jobless rate should sink below this point, companies overall would have to raise wages in order to attract and retain workers.
    Fatter paychecks would encourage people to spend more, which could help push up prices. Japan's core consumer-price index--which excludes fresh food but includes energy-- dropped 0.1% in May from the previous year. "The key to higher consumer prices is improvement in the employment environment," says Takuji Aida, chief economist in Japan for Barclays Capital.
    Higher consumer prices would allow the central bank to raise interest rates, a move that would likely drive the yen higher. While a weak economy typically causes a currency to fall, the weak currency makes exports less costly and often helps the economy get back on its feet.
    Sharp Corp., one of the world's top makers of liquid-crystal displays and solar-powered batteries, now plans to hire 1,000 college and high-school graduates in spring 2008, a hiring target up 60% from this year and the highest since 1992. Chubu Electric Power Co., a utility that supplies electricity to the booming industrial area around Nagoya, the home of Toyota Motor Corp., will hire 500 graduates next spring, more than five times its number of hires in the year ended in March 2005.
    Japan's companies were on a massive cost-cutting campaign during the past decade to cope with the country's long economic downturn. Even as the economy grew these past five years, the companies held down wage bills by skimping on bonus payments and hiring temporary workers for lower pay and fewer benefits.
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