This tight market could trigger the recovery in Tokyo

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Here's a statistic any worker would love: Japan has 1.37 job openings for every applicant.

The last time the country's labor market was this tight was more than two decades ago. Back then, Tokyo's stock market and economy were roaring. Japanese investors were in a speculative frenzy, bidding up the price of stocks, real estate and consumer goods until the bubble burst.

Today, it's a very different story. Japan's economy badly needs a jump start and is fighting against falling prices (deflation). The rising number of jobs could be the first step in a sustainable recovery. 

The reason? A tight labor market can bring about inflation, which is what Japan needs right now. 

_{Source: Bloomberg, as of August 2016.}

Why inflation is important for Japan

As businesses compete to secure workers, they typically bid up wages. This increase in wages often leads to a rise in prices on goods and services: inflation. It also encourages workers to spend their money today, as it will buy less and less tomorrow. 

World Bank records show Japanese household spending has been falling sharply since 2012, as the lack of inflation has encouraged people to hold on to their money. 

And, according to World Bank data, prices in Japan have gone almost nowhere for 20 years.

Boosting prices for goods and services (inflation) is one of the key goals of Prime Minister Shinzo Abe's economic plan. To do that, his government has introduced aggressive monetary and fiscal stimulus, dubbed "Abenomics."

The success of the program has yet to be seen, but the country's drum-tight labor market might prove a telling factor in stimulating inflation and ultimately household spending. And on the back of that rising demand, help spur Tokyo's next rally.

If you're looking to access the Japanese market, consider the iShares MSCI Japan ETF (EWJ), or broaden your search to other countries.  

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