By Agencies

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Japan's unemployment rate fell to 4.9 per cent in January, improving by 0.3 percentage points from the previous month, official government data has shown.

The fall is a marked improvement from a record high jobless rate of 5.7 per cent seen last July and is being seen as a further positive sign of recovery in the world's number two economy.

According to the ministry of internal affairs and communications, the unemployment rate for men fell by 0.1 percentage point to 5.2 per cent, and the rate for women fell by 0.5 percentage point to 4.6 per cent.

There were 46 jobs available for every 100 job seekers in January, up from 43 jobs in December, the labour ministry added.

However compared to the same time last year, the number of jobless people has still risen by 460,000, to 3.23 million.

Last year, Japan emerged from its worst post-war recession, growing in the second and third quarters due to rebounding exports, much of which went to China, and on the back of government stimulus packages.

However, for the whole of 2009, the economy contracted by 5.0 per cent.

Deflation threat
 
Renewed deflation in Japan however is seen as a threat to recovery, amid subdued consumption demand.

Benjamin Pedley, the managing director at LGT Investment Management, said that deflation needs to be addressed by the government.

"While deflation remains part of the system, it is not a good sign for the economy moving forward," he said.

"Deflation is actually a bigger problem for economies than inflation. This is because if consumers know the prices of goods are going to be cheaper, it means they may delay their spending, thereby resulting in weak levels of private consumption."

Despite the deflation warning, figures released on Monday showed household spending actually grew by 1.7 per cent from a year earlier, marking the sixth straight month of an increase.

Spending on cars, including vehicle purchases, increased by 11.3 per cent in January from a year earlier.

However, economists have expressed doubt that this increased spending can be sustained should the government decide to rein in its emergency stimulus spending measures.