The upbeat data will make it easier for the Japanese central bank to justify another interest rate rise as a tightening labour market looks set to spur wage growth and consumer spending, stimulating inflation, analysts said.

The surprise fall in the jobless rate to 3.8 percent in April from 4.0 percent in March reflects brisk hiring by firms at the start of the new fiscal year and a shift from part-time to full-time positions, they added.

The last time Japan's unemployment rate was so low was in March 1998, officials said.

"The tightening of the labour market implies greater pressure for wages to rise and this is the sort of news that the Bank of Japan is watching for in its vigilance over any signs of cost-push pressures," noted Macquarie Securities economist Richard Jerram.

The total number of unemployed dipped by 160,000 from a year earlier to 2.68 million in April, the Ministry of Internal Affairs and Communications said.

Household spending meanwhile rose 1.1 percent in April from a year earlier, up for a fourth straight month, lifting Japanese shares prices and the yen.

"The mood of the consumer is improving and the economy continues to expand," said Credit Suisse Securities economist Satoru Ogasawara.

"The warm weather and the Golden Week holidays earlier this month played a key role in pushing up household consumption," he added.

Japan's labour market has been tightening as the economy recovers from its long slump and companies compete to hire skilled young graduates.

But firms have been reluctant to share more of their fast-growing profits with workers, resulting in only meagre wage rises that have meant the recovery in consumer spending has lagged behind the wider revival.

"A majority of salaried workers cannot feel the trickle down effect of (the) economic recovery," Tsuyoshi Takagi, the president of Japan's trade union confederation, or Rengo, told reporters Tuesday.

Recently there have been signs of a long-awaited pick-up in consumer spending, even as consumer prices turn lower again, falling for a third straight month in April although at a slower pace than before.

"As the labour market continues to tighten, we expect wages to show a clearer upward trend," predicted Barclays Capital's chief economist in Tokyo, Takuji Aida.

"We believe the increase in jobs on the back of strengthening labour shortage perceptions and the accompanying increase in aggregate wages supports consumption," he added.

Reflecting sluggish wage growth, however, household income held steady in April, ending six straight months of gains.

Retail sales fell 0.6 percent in April from a year earlier, the seventh straight monthly drop, separate official figures showed, although analysts said the general trend still appeared to be upwards.

Japan, which for years was beset by stagnant growth and on-off recessions, is now in the midst of its longest sustained expansion since World War II.

But analysts say the US economic slowdown and sluggish wage growth are a concern, while future interest rate rises by the Japanese central bank may dampen consumer spending.

"Consumption is expected to slow down in the second half of the year," said Credit Suisse's Ogasawara.

"Although the Japanese economy is improving, (the recovery) is still only mild and we cannot be overly optimistic," he added.