MNI POLICY: Worsening Labour Market Ahead Remains BOJ Concern

Bank of Japan officials still expect the labor market condition to worsen in Q3 in the wake of the sharp economic downturn seen in the second quarter, although the worst effects will be tempered by government measures to help companies and protect jobs, MNI understands.

Despite the government's support measures, BOJ officials think the unemployment rate will likely pick up, as unemployment normally lags a decline in growth, but the rise will be dictated by the number of corporate failures in coming months.

At present, unemployment levels are being constrained by the government's Employment Adjustment Subsidy, initially expected to end in September but now extended to the end of the year.

JOBLESS RATE

The unemployment rate rose to 2.9% in July from 2.8% in June but matched May's 2.9%, which was the highest level seen since February 2017, although rates remain lower than those in the U.S. and Eurozone.

One focus for BOJ economists is to see how people losing jobs in the hard-hit hospitality sector succeed in moving to industries and firms suffering from labor shortages.

Japan's job-to-applicant ratio fell to 1.08 in July from 1.11 in June, the lowest level in over six years, an indication that the unemployment rate could rise further in the coming months.

With over two million people still furloughed or taking extended leave from their jobs across Japan, the central bank is concerned that as job support measures end, the jobless rate could rise quickly,