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A few blocks from one of Tokyo's most prestigious shopping areas, a steady stream of dejected faces files into the cheerfully named Hello Work centre.

On this grey, rainy morning, with just 44 jobs available for every 100 applicants, few will find the steady employment they seek. These are some of the estimated 3.5 million Japanese now out of work, nearing the country's highest unemployment level since the Second World War.

“There used to be a lot of advertisements in the newspapers for work. They don't have them now,” said Kimura Katsutaka, a 56-year-old salesman.

Mr. Katsutaka, who effectively lost his job when sales plummeted and his health food company changed his contract to commission only, donned a crisp shirt and pinstripe suit to visit the work centre. He remembers the last severe downturn.

“[The year] 2002 was a bad time. A lot of people got fired. That was the hardest time. But at that time, some companies were okay and some were not okay. Right now, everybody is bad, even Toyota – in the whole country, there are no companies in good condition,” he said, taking a break from scanning job boards in the Shibuya centre, with listings for building managers, retail sales staff and data-entry clerks.

New statistics this week show Japan's unemployment rate hit 5.2 per cent in May, a level not seen since September, 2003. Worse, economists suggest the rate is likely to continue to climb.

Separate data from Japan's Labour Ministry also showed that the ratio of job offers to job seekers has now fallen to 44 jobs per 100 people, the lowest reading since records began in 1963.

The bad news comes on the heels of continued falling exports, which last month were down 40.9 per cent year-on-year; separate surveys show Japanese companies believe their numbers of staff exceed business needs by the widest margin in a decade.

But the jobless numbers are most worrisome. “We are expecting to go to 5.9 per cent by the fourth quarter next year, in 2010. This is a historical high,” said Satoru Ogasawara, an economist at the Tokyo office of Credit Suisse.

“The headwind that concerns us most is unemployment,” economists with securities firm Nomura wrote in a recent report on Asia. “Granted, it is a lagging indicator of the cycle, but without a strong recovery in aggregate demand, it will be difficult to create new jobs, and so unemployment can remain stubbornly high, hindering the economic recovery.”

The Japanese government – itself in political turmoil, with an election widely expected this summer – did spur an increase in consumer spending last month, due largely to stimulus spending that has included cash payouts to families. The spending, along with factories increasing production to rebuild depleted inventories, is expected to push the country's economy into a modest, temporary recovery this summer.

But this has been little consolation to unemployed Japanese, who now number three-quarters of a million more than a year ago. Most of those were temporary, or contract, workers who had already struggled in a nation where until very recently, graduates expected to be hired into a job for life.

The recession is taking a social toll as well: Tent camps have sprung up in parks and small demonstrations can now be seen on city corners, both great rarities in this polite and conservative society. Twentysomethings are frustrated with the lack of opportunities and the older generations worry what the crisis and an aging work force mean for their pensions.

At the Shibuya Hello Work centre, it is a frustrating time for career counsellors. Manager Katsuyoshi Yabata said the centre has a special team that approaches employers – from Toyota to Swedish clothing chain H&M – to draw out as many listings as possible.

“I don't know when it will improve. The government is putting a lot of budget into this,” a sombre Mr. Yabata said.

Some limited economic recovery is expected this summer as government programs take hold; a Bank of Japan survey released earlier this week showed big manufacturers still gloomy about the future, but the numbers were better than the last quarterly survey in March, which showed record lows in the sentiment index.

But after that, economists are warning of a second, further slide, before a more permanent recovery.

“In terms of business cycles, [Japan's economy] is still down. It has hit a very big bottom, but it is still in decline,” said Akira Kojima, a trustee with the Japan Centre for Economic Research. “It's not a standard V-shaped recovery. We may have a second dip.”

Special to The Globe and Mail