Image copyright AFP Image caption Despite a stagnant economy, the country is near full employment

Japan's unemployment rate fell to 3% in July, the lowest for 21 years, despite the country's stagnant economy.

Separate data showed spending by households in Japan fell by less than expected in the month.

Japan's government has been struggling for years to find a way to boost growth in the world's third-largest economy.

Prime Minister Shinzo Abe's ambitious reform agenda, dubbed Abenomics, has introduced huge stimulus packages to try to revive the economy.

Japan's economy grew at an annualised rate of just 0.2% in the three months to June and recent inflation figures fell far short of the central bank's 2% target, so Tuesday's fresh data provides a rare glimpse of positive news.

The new seasonally-adjusted unemployment rate of 3%, down from 3.1% in June, is just above what authorities would consider full employment.

Marcel Thieliant, senior Japan economist with Capital Economics, said the latest data "suggests that the jobless rate will fall below 3% before long".

Figures showed that household spending fell 0.5% in July compared with a year earlier, although this is still better than the 0.9% drop expected by analysts.

Earlier this month, the Japanese cabinet approved yet another stimulus package, worth more than 28 trillion yen ($275bn; £207bn).

Image copyright Getty Images

Explaining Abenomics

Japanese Prime Minister Shinzo Abe's economic policy, which quickly became known as "Abenomics" is based on three arrows: