MNI INSIGHT: BOJ Q2 Jobs Risk Worry As Corporate Profits Fall

--BOJ Sees Growing Risk That Hours, Wages Will Fall In Coming Months

--Concern Japan Could See Cut Back On Part-Time Worker Numbers

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will look through the Q1 downturn that has

pushed the country back into recession, as the data is already seen as

historical, with the expected slump in Q2 now the major concern for

policymakers, in particular the adverse impact it will have on the labour

market.

     Economists at the Bank expect the economy to have slowed sharply in the

April-June period as the spreading Covid-19 pandemic and states of emergency

across Japan have weighed heavily of consumer demand and business sentiment.

     The main concern now at the BOJ is that the ongoing slowdown will start to

hit the labour market, which in turn will further undermine both sentiment and

consumption, with services, particularly consumer-facing industries in the

hospitality and amusement sector, hit hard in Q2 by social distancing and

stay-at-home restrictions.

     --EARNINGS RISK

     Policymakers see that lower corporate revenues have already pushed wages

lower and taken some pressure off the tighter labour market and now see it as

inevitable the employment situation will worsen, with overtime hours and

part-time workers likely to be cut from here.

     The BOJ board is already looking at ways of extending lending to the real

economy and policymakers now have to considers whether or not the BOJ can

maintain its forecasts laid down in the April quarterly Outlook Report or

whether there will need to be a downgrade to the expectation of a H2 recovery in

the July update.

     If the outlook for a H2 recovery starts to deteriorate, risks are growing

that more companies will run into financial trouble as cash reserves start to

run out early in H2

     A further extension of the Employment Adjustment Subsidy, a government

subsidy program to support firms in retaining workers, could help reduce the

risk of a sharp rise in unemployment.

     --Q1 GDP CONTRACTS

     Japan's economy contracted for the second straight quarter in Q1, down 0.9%

q/q, or down an annualized 3.4%. The economy was weighed by weak demand in the

private sector on the back of the spread of the coronavirus.

     Private consumption, which accounts for about 60% of Japan's GDP, fell 0.7%

q/q in Q1, after a revised 2.9% fall in Q4. The median forecast was for a 1.7%

q/q decline, while business investment fell 0.5% q/q.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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