MNI POLICY: BOJ Worry Unemployment To Rise, Dampen Confidence

--BOJ Officials See Homeworking May Lead To Job Losses

By Hiroshi Inoue

     TOKYO (MNI) - The BOJ sees the labor market worsening from current levels,

even if the economy recovers through H2, pushing the unemployment rate higher

and worsening the output gap.

     At present, the BOJ will not take additional policy easing measures,

believing recent measures to get financing in place for small and medium-sized

companies will offer at least some support for employees, MNI understands.

     Pre-pandemic, the BOJ highlighted the tightness of labor market condition,

or labor shortages, was, along with an ageing population, in part a bi-product

of accommodative policy and helped keep upward pressure on wages and inflation.

     One concern is that an increase in unemployment levels will weigh on

consumer sentiment and households' medium- and longer-term growth expectations,

as always a key focus point for BOJ economists.

     --WARNING SIGNS

     There have certainly been some danger signs in recent data suggesting many

firms are already holding excess staff, despite all the talk of labor shortages

and tight conditions. The June Tankan highlighted that the number of new

graduates hired by all industries in fiscal 2021 is expected to fall 5.6% y/y -

the first decline in a decade.

     With companies changing their operating procedures and business style as

the after-effects of the pandemic become clearer, remote working is leaving many

employees with little to do, meaning firms will likely look to voluntary

retirements and other job-reducing measures, bank officials found through

meetings with corporate executives.

     Bank officials worry the risk is that around 5 million people a month are

currently counted as employed, but with little to actually do under new

circumstances, many of those will soon fin themselves unemployed unless there is

a change in perception of how the virus will act.

     Japan's seasonally adjusted average unemployment rate rose to 2.9% in May

from 2.6% in April, hitting the highest level since February 2017, when it also

stood at 2.9%. The job-to-applicant ratio fell to 1.20 in May from 1.32 in

April, the lowest level in nearly five years and the biggest point drop since

1974, suggesting the unemployment rate will rise above 3% in coming months.

     Japan's positive output gap was been estimated at 0.29 percentage points in

Q1, sharply narrowing from 1.07 pp in Q4 and it is expected to further narrow

and move into negative territory.

--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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