Japanese firms warn that stricter limits on foreign workers could be counterproductive, as the country faces a shrinking population and increasing labour shortages. These shortages have already resulted in a record pace of bankruptcies.
A Reuters poll reveals that nearly half of Japanese firms support the Bank of Japan chief’s performance, while 77% are against tightening rules on foreign workers. Around half of the firms expect their earnings for the October-March period to align with initial projections.
Resistance to Foreign Worker Restrictions
Most companies in Japan resist stricter foreign worker restrictions, with over three-quarters opposing such measures. An official from a transportation company mentioned, “With the Japanese population shrinking, we have no options but to accept foreigners for the development of the country.”
Labour shortages are a pressing issue, with Tokyo Shoko Research reporting 238 bankruptcies due to staff shortages in the first eight months of 2025, projecting a record high for the year.
For the fiscal year’s second half starting in October, 47% of firms anticipate meeting initial earnings forecasts, while 32% foresee potential underperformance. Key concerns include raw material price volatility, exchange-rate fluctuations, interest rate changes, and new U.S. tariffs.
We are seeing major concerns from Japanese firms over exchange-rate swings, which points to continued volatility in the yen. With the USD/JPY trading in a wide range this year, peaking above 158 in July 2025, any unexpected domestic data could cause sharp movements. This environment suggests traders should look at options strategies that profit from this turbulence, rather than betting on a specific direction.
Corporate Earnings and Economic Strategy
The corporate earnings outlook for the period starting in October is fragile, as nearly a third of companies anticipate missing their forecasts. This sentiment, combined with the record 238 bankruptcies from labor shortages in the first eight months of 2025, signals potential weakness in the Nikkei 225. We believe buying put options could serve as a valuable hedge against a potential market dip in the fourth quarter.
Given the shaky domestic economy, the Bank of Japan is unlikely to pursue aggressive interest rate hikes. This continues the cautious stance we’ve seen since their minor policy adjustments back in 2024, when inflation first showed signs of persistence. Therefore, derivative plays betting on significant monetary tightening in the near term carry a high risk of failure.
The widespread corporate opposition to stricter limits on foreign workers underscores a critical long-term economic challenge. The labor shortage is not a temporary issue; it’s a structural reality that will likely limit Japan’s growth potential for the foreseeable future. This reinforces a longer-term strategy of using currency derivatives to position for a structurally weaker yen against economies with better demographic outlooks.
