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MNI INSIGHT: BOJ Sees Weaker Q3 GDP Bounce Risk

High-frequency Data Shows Private Spending Losing Momentum

Unemployment Rate May Rise Again After Economy Picks Up

(MNI) Tokyo
TOKYO (MNI)

High frequency data seen by Bank of Japan officials have shown a slowing in consumer activity since mid-July, raising concerns that the Q3 snap-back from weakness in the April-June period may be weaker than first expected, MNI understands.

The BOJ sees a sharp contraction in Q2 GDP, in line with market expectations of a 7.5% q/q decline, and are currently forecasting a solid recovery in Q3. However, with many people staying home or steering clear of large, crowded areas as Covid-19 infection levels grow, those hopes of a rebound are being revised lower.

There is also a growing worry that the resurgence of the virus could intensify into the latter months of the year and that would impact of the forecasts of a continuing recovery into Q4, forcing the BOJ to adapt their current baseline scenario for the recovery.

PARTICIPATION RATE

Although further pressure is seen on the labour market, with more job losses likely over coming months, BOJ officials don't expect an immediate rise in the unemployment rate as the participation rate – the percentage of the population actively working or seeking work – will fall as many people will just leave the workforce.

The unemployment rate remained low in April, May and June despite the downturn, helped by the government's job retention schemes and by laid-off workers staying home rather than looking for new jobs, BOJ official believe.

Japan's unemployment rate fell to 2.8% in June from 2.9% in May.

GOVERNMENT SUPPORT

Contrary to first expectations, the Bank expects the unemployment rate to rise if the economy improves or Covid-19 infections settle down, theoretically prompting people back into the workforce to seek new jobs.

The government's Employment Adjustment Subsidy is currently set to expire at the end of September, although the government plans to extend the program until December.

Although the government program has helped prevent a sharp downturn in the l,abor market, some at the BOJ believe the program could increase mismatching across the jobs market, reducing peoples incentive to shift to new opportunities.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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