Japanese Labour Market: Running on Half-Empty?

Well, things certainly have been moving quite quickly in Japan recently. The recovery seems to have just started to gain some traction, and now we are being told that internal capacity limits may be being reached due to the presence oF labour shortages:

"Japan’s large manufacturers are short of capacity for the first time since the bubble era of the early 1990s, while employers across the country also face the worst staff shortages since around that time, according to the Bank of Japan’s Tankan survey."

This should really hardly be surprising, since with a stagnant and ageing population I am not sure where people imagined all the extra labour that was needed to sustain the recovery was going to come from.

The survey’s capacity index for large manufacturers - a measure of whether they have enough plant - swung from plus 2 in December 2005 to minus 1 in Monday’s March survey. This was the first negative figure since 1991. The Bank subtracts the percentage of companies complaining of insufficient capacity from the percentage reporting excessive capacity.

The survey’s economy-wide employment index - excessive employment minus insufficient employment - fell three points to a 14-year low of minus 7.

Signs of labour shortages tally with government employment figures announced on Friday, which showed a fall in the unemployment rate to an eight-year low, and a rise in the jobs-to-applicants rate to a 14-year high.

This labour market tightening would seem to have three logical outcomes.


Firtsly a growing inflationary pressure inside Japan (viz the FTs comment that "The gaps ......strengthen the case among the hawks at the central bank who want to end the BoJ’s zero interest rate policy as soon as possible to forestall inflation).

Secondly, a growing pressure on the trade balance from the increasing introduction of more competitively priced imports.

Thirdly, and outsourcing drive in search of more abundant labour (or lets move to China):

Japanese companies are turning to China as a manufacturing base to benefit from low labour costs, but are also relying increasingly on the burgeoning Chinese consumer market as a destination for exports as well as goods produced in China.

Japan’s economic recovery is still largely export-based and continued Chinese buying is acknowledged by policy-makers as a key component in ensuring the recovery is sustainable, despite occasional political tensions.