MNI POLICY: Growing BOJ Concern Over Worsening of Labor Market

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are increasingly concerned that the

current downturn will hit the labour market harder than initially thought as

corporate profits are slow to recover, forcing firms to lay off workers at a

faster pace than in normal downturns, MNI understands. 

     The BOJ has implemented lending facilities to facilitate smaller firms'

financing in an attempt to help firms keep staff employed, but there is a

concern more may be needed.

     With no cash flow and sluggish profits, companies will soon be forces to

trim costs, including slower wage hikes and even some cuts, which will further

dampen consumer sentiment and spending.

     A government survey showed corporate profits fell sharply in Q1, down 32%

to record the biggest dip since the early days of the financial crisis. They

will slide further in Q2 as economic activity in Japan had been hardest hit by

the Covid-19 from late-March, BOJ officials expect.

     The tight labor market and solid wages helped by Japan's monetary and

fiscal policy have been the main pillar underpinning Japan's economic recovery

in recent years and the BOJ fears any unravelling of that will see a general

deterioration in the economy and weigh on momentum toward achieving the price

stability target in the post-coronavirus economy.

     --STRUCTURAL SHORTAGES

     To date, companies have not cut workers, trying hard to maintain trained

staff as there will still be structural labor shortages when the outbreak wanes.

     The government lifted the state of emergency on May 25, , but spending and

lifestyles will not return to normal immediately amid lingering concern over a

second wave of infectious disease.

     The government's employment adjustment subsidy fund in the supplementary

budget will boost wage subsidy pot, helping prevent unemployment rate from

rising sharply, but those measures alone will not fully support smaller firms

and protect workers.

     Japan's seasonally adjusted average unemployment rate rose to 2.6% in April

from 2.5% in March, for the highest level since December 2017 when it stood at

2.7%. The job-to-applicant ratio fell to 1.32 in April from 1.39, for the lowest

level in four years and one month, indicating that the unemployment rate, which

is lagging real economy, will rise to 3% or higher in coming months.

--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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