Japanese companies are warning that stricter limits on foreign workers may backfire. The country is facing a shrinking population and more labor shortages, which have already caused many businesses to go bankrupt. A recent Reuters poll found that nearly half of Japanese firms approve of the Bank of Japan chief’s performance, while 77% oppose stricter rules on foreign workers. About half of these companies expect their earnings from October to March to meet original forecasts.

Opposition to Foreign Worker Restrictions

Many companies in Japan are against tighter restrictions on foreign workers, with over three-quarters opposed. An official from a transportation firm stated, “With the declining Japanese population, we have no choice but to welcome foreigners to help our country grow.” Labor shortages are a significant concern. According to Tokyo Shoko Research, there were 238 bankruptcies due to staff shortages in the first eight months of 2025, suggesting this year could see record bankruptcies. For the second half of the fiscal year starting in October, 47% of firms expect to meet their initial earnings forecasts, while 32% worry they might not. Main worries include fluctuating raw material prices, exchange rates, interest rates, and new tariffs from the U.S. Japanese firms are particularly concerned about changes in exchange rates, indicating ongoing instability for the yen. The USD/JPY has swung widely this year, hitting over 158 in July 2025. Unexpected domestic news could lead to sharp market movements, suggesting traders might benefit from options strategies that capitalize on this volatility rather than guessing the market direction.

Corporate Earnings and Economic Strategy

The outlook for corporate earnings in October is uncertain. Nearly a third of companies expect to miss their forecasts. This, along with the 238 bankruptcies from labor shortages, points to potential weakness in the Nikkei 225. We recommend buying put options as a hedge against a possible market decline in the fourth quarter. Given the fragile domestic economy, the Bank of Japan is unlikely to raise interest rates aggressively. This reflects the cautious approach seen since their minor policy changes in 2024, when inflation began to linger. Therefore, investing in derivative plays that expect major monetary tightening soon carries significant risks. The widespread resistance to stricter foreign worker limits highlights a long-term economic issue. The labor shortage is not just a temporary problem; it’s a fundamental challenge that could hinder Japan’s growth for years to come. This emphasizes the importance of using currency derivatives to prepare for a consistently weaker yen compared to countries with stronger demographics. Create your live VT Markets account and start trading now.

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