May 29 (Bloomberg) -- Japan's jobless rate unexpectedly fell to a nine-year low in April and consumer spending increased for a fourth month, suggesting the economy is resilient enough to withstand higher interest rates.

The unemployment rate dropped to 3.8 percent from 4 percent, the statistics bureau said today in Tokyo. The median estimate of 34 economists surveyed by Bloomberg News was for the number to stay unchanged for a fifth month. Household spending rose 1.1 percent, the bureau said, exceeding the 0.2 percent expectation.

Economic and Fiscal Policy Minister Hiroko Ota said more demand for workers should drive wages higher, spurring consumer spending. The yen rose and bonds fell on speculation wage growth will help fuel inflation, enabling the Bank of Japan to raise its key interest rate, the lowest among major economies.

``This is what the BOJ has been waiting for,'' said Tomoko Fujii, a senior economist and strategist at Bank of America N.A. in Tokyo. ``We've been expecting a September rate hike, but the most recent data suggest a growing chance of an August move.''

The yen climbed to 121.39 per dollar at 3:29 p.m. in Tokyo from 121.73 before the reports. The yield on Japan's five-year note, among the most sensitive to interest-rate changes, rose 2.5 basis points to 1.34 percent, the highest since August.

The ratio of jobs available per applicant improved in April for the first time in nine months, climbing to 1.05 from 1.03, the Labor Ministry said today. The number rose to a 14-year high of 1.09 last July.

Pressure on Wages

``The tightening of the labor market implies greater pressure for wages to rise,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. ``This is the sort of news that the BOJ is watching in its vigilance'' about inflation.

So far higher demand for workers has yet to reverse a decade-long slide in wages or drive up prices. Wages declined for a fourth month in March after rising 0.3 percent in 2006. Consumer prices excluding fresh food fell for a third month in April, declining 0.1 percent after a 0.3 percent drop in March.

Bank of Japan Governor Toshihiko Fukui said this month that even with prices falling the risk of excessive investment might be a reason to raise interest rates. The bank doubled the key overnight lending rate to 0.5 percent in February.

Industrial Production

Consumer spending helped Japan's economy grow an annualized 2.4 percent in the first quarter, faster than the 1.3 percent in the U.S. Industrial production probably rose 0.5 percent in April as manufacturers anticipate demand from Asia and Europe will offset slower U.S. growth, economists said. The Trade Ministry will release the report tomorrow at 8:50 a.m. in Tokyo.

Increased employment of college graduates at the start of the business year drove the drop in the jobless rate, the statistics bureau said. The unemployment rate for people aged 15 to 24 fell 1.5 percentage points to 7.5 percent.

``Young people who in the past couldn't find jobs out of college are now getting them,'' said bureau spokesman Norio Kondou. Japan's unemployment rate is the second lowest among Group of Seven nations, behind 2.8 percent in the U.K.

One reason higher demand for labor has yet to spur wage growth, economists say, is that retiring baby boomers are being replaced by cheaper, younger employees.

Greater use of part-time workers is another reason. Part- timers made up more than a third of the workforce in the first quarter, rising almost one percentage point from the previous three months, the statistics bureau said.

``Japanese companies continue to want to hold down labor costs, so it's hard to imagine a dramatic upswing in full-time hiring or wages,'' said Maiko Noguchi, an economist at Daiwa Securities SMBC in Tokyo. ``Things are moving in a positive direction, but it's going to take some time.''

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net.

Last Updated: May 29, 2007 02:36 EDT