On paper, the nation's low unemployment rate suggests an economy weathering the novel coronavirus reasonably well, but official figures belie worsening prospects for the country's army of temporary workers, who make up about 40 percent of the employment market.
A rise in job losses would undermine one of the few successes of Prime Minister Shinzo Abe's "Abenomics" stimulus policies, which has been aimed at reviving the economy.
The jobless rate stood at 2.8 percent in June, much lower than the 10.2 percent seen in the United States and the 7.8 percent in the 19-member eurozone.
But a closer look at data shows a rising number of people are dropping out of the search for work. That prevents the official jobless rate — the ratio of job-seekers who are yet to secure employment — from rising much.
About 2.4 million furloughed workers are currently being kept on payrolls backed by state subsidies, which the government is seeking to extend beyond their current expiration at the end of September.
"The huge number of furloughed workers suggests companies are saddled with excess labor and are under pressure to cut jobs down the road," said Hisashi Yamada, senior economist at the Japan Research Institute.
"Job losses will hurt Japan's economic recovery as they spread to broader sectors in coming years, eroding households' purchasing power," he said.
The nation's economy plunged by a record pace in the second quarter as the pandemic hit consumption and exports.
In the jobs market, the pain has been felt most by those categorized as "nonregular workers," including those with low-paying, part-time jobs, who make up 38 percent of all employees in Japan.
Nonregular workers account for roughly three quarters of those employed by restaurants and hotels, many of which were hit hard by the pandemic, according to the labor ministry.
A government survey showed that more than 40,000 workers, about 15,000 of whom are nonregular workers, have been laid off since February.
One worker in her 20s, who was employed in a temporary role at a call center in Kanagawa Prefecture, quit her job in June.
"My employer would not allow us non-regular workers to work from home," she told Reuters, on condition of anonymity. "I was told that I could take time off but would not be paid, so I quit, thinking it'd be better living on unemployment insurance."
Some economists estimate the jobless rate would be closer to 4 percent if furloughed workers were included in the official figures.
More broadly, the downturn has affected both those at the start and end of their careers.
Over 100 university and high-school students have had their job offers canceled — about triple the number for 2019. More than 50 listed firms have offered early retirement to some 9,300 employees, doing so at the fastest pace in eight years, separate data found.
Some analysts expect the official jobless rate to rise to match the record 5.5 percent logged during the 2009 global financial crisis.
That is a high level in Japan, where labor unions have historically accepted low wage offers to protect jobs — keeping the jobless rate low compared with other countries.
Nobuyuki Sato, chairman of a Japanese-style hotel and inn in Yamagata Prefecture, said an end to government subsidies could force his company to start cutting jobs.
"Labor costs are a major burden to Japanese-style inns like us, as they account for 30 percent of overall costs," he said.
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