Tokyo (AsiaNews / Agencies) – Employee compensation decreased by 7.1% in June compared to June 2008, the largest decrease in 20 years. Experts fear a heavy impact on domestic consumption, with increased risks of deflation.

The Ministry for Labor said that the drop in salaries has increased threefold since May with a record negative since 1990. The figure was almost expected, after unemployment rose by 31.3% (+ 831 thousand) in June, compared to June 2008, reaching 3.48 million unemployed (5.5% of the workforce). This also a result of the progressive massive job layoffs in leading companies such as Nissan, Sony and Sharp.

But the figure is high and raises fears of the real possibility of an economic recovery early in 2010, as forecast by the Central Bank of Japan. In the country there was a cautious optimism after the industrial production in the second quarter of 2009 had recorded a modest increase of 0.4%, after shrinking by 3.8% in the first quarter.

The BOJ has predicted that deflation will last until mid-2011.

The massive job losses and uncertainty for the future are causing a gradual contraction of domestic consumption: in July the prices of consumer products, excluding food, decreased by 1.7% compared to a year earlier. Domestic consumption accounts for about 60% of Gross Domestic Product and all agree that there can be no real economic recovery without the support of domestic consumption.

Masami Adachi, expert JPMorgan Securities in Tokyo, states that "this situation causes more downward pressure on prices; deflation will worsen in 2010. The interventions of the central bank can not change this situation”.

In July, the BOJ purchased licenses of banks to avoid their collapse and gave the banks long term loans at only 0.1% interest.