MNI POLICY: BOJ Worry Slower Recovery Will Hit Labour Market

By Hiroshi Inoue

     TOKYO (MNI) - Unemployment is a growing concern for the Bank of Japan, as a

weaker and slower recovery from the Covid-19 shock could see many employees

currently furloughed gradually lose jobs, sending the jobless rate higher,

further eroding confidence and denting spending, MNI understands.

     A total 5.97 million were on adjusted work schemes across Japan in April,

up from from 2.49 million in March, and there is a concern that many of the

near-6 million will slowly be shifted to the ranks of the jobless, the BOJ

worries, pushing the unemployment rate far above April's 2.6%.

     The job-to-applicant ratio fell to 1.32 in April, the lowest level in just

over four years, an indicator that the unemployment rate will rise to 3% or

higher in coming months.

     --GOVT SUBSIDY

     In order to protect employment, as the impact of the virus spread, the

government extended its Employment Adjustment Subsidy to cover the vast majority

of wages until the end of September. An existing system, the government scheme

subsidizes a part of wage payments for firms that don't dismiss employees and

instead adjust employment by asking workers to take leave, even if sales or

production decreases.

     However, bank officials warn that the government's measure will not fully

protect employees longer-term and the BOJ and legislator's have made efforts to

support corporate financing in order to save jobs.

     But much depends on the scale and speed of the recovery. At best

expectations, the schemes will work, bridging into the upswing, and reducing the

risk of bankruptcies and layoffs. However, if the bounceback slows, the likely

slew of resulting corporate failures will likely see a sharp rise in the jobless

rate.

     --BOJ CITES WEAKNESS

     Following the latest policy decision Tuesday, the BOJ statement noted the

"employment and income situation has shown some weakness, and private

consumption has decreased significantly."

     The to now tight labour market was largely the result of the BOJ's

accommodative policy and a main pillar supporting the BOJ view that an improving

output gap has increased upward pressure on consumer prices. That pillar is now

in jeopardy, further threatening momentum toward overall price stability target.

--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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