Japan's efforts to put the kibosh on karoshi, or "death by overwork," by addressing excessive overtime could weigh heavily on economic growth, Deutsche Bank said.
"Cuts in overtime hours lead to lower household income, corporate earnings, and the economy's potential output.
Labor intensive industries that depend on domestic demand and have a greater weight of part-time workers in their work force are likely to suffer more," the bank said in a note dated Friday.
"Unclaimed overtime, negative publicity and the fallacy of composition all reinforce the 'shorter work hours shock.'"
Deutsche Bank cut its economic growth forecasts for Japan to 1.0 percent in 2017 and 1.1 percent in 2018, from 1.1 percent and 1.4 percent respectively.
While the bank expected fresh legislation limiting overtime, potentially to 45-60 hours a month, it said it was cutting its forecast because the government was already intensifying monitoring of overtime levels, dragging on companies.
"Japanese employees often work longer than their reported hours in what is known as 'unclaimed overtime,' which does not show up in official data," it noted. "As such, the actual extent of the cut in overtime work is likely to exceed the published data, which cannot be fully countered by the rise in labor productivity."
Deutsche Bank said it expected companies across the board would slash overtime to avoid negative publicity.
The working-hours decline across the economy would hurt household income and spending, spurring a negative feedback loop as corporate sales and profits also fall, the bank said.
It added that it didn't expect going home early would give employees more time to consume as the low household savings rate means households can't really afford additional spending.
Structural reforms to Japan's labor market were considered a crucial part of Abenomics, or Prime Minister Shinzo Abe's plan to boost growth in the country's long moribund economy.
The Japanese workforce has a long-running reputation for long hours with their noses at the grindstone. The country even has a word, karoshi, or death by overwork.
Police statistics have reportedly indicated that more than 2,000 people committed suicide in 2015, with work stress cited as a contributing cause.
In the year to end-March 2015, the country saw a record number of claims for compensation for karoshi at 1,456, Reuters reported, noting that the requirement was monthly overtime of 80-100 hours followed by either death by cardiovascular illness tied to overwork or suicide following work-related stress.
The effort to push companies to end long overtime hours got a fillip about a year ago, amid an outcry after an employee at advertising agency Dentsu committed suicide after working more than 100 hours of overtime every month for around nine months.
In October, the government released its first study on karoshi, finding that workers at 12 percent of companies work more than 100 hours of overtime monthly and 23 percent of companies have workers putting in more than 80 hours of overtime monthly.
Abenomics has targeted getting companies to stop requiring excessive overtime in part to increase women's participation in the workforce.
Faced with discriminatory barriers, including tax penalties, women are often squeezed out of Japan's workforce.
The workforce participation rate for Japan's women rose to a record of 66 percent last year, but with women still saddled with the "unpaid work" of elder and child care, excessive overtime remains a key barrier to bringing more women into labor markets.
At the same time women are being squeezed out, much of the population is also aging out, making boosting participation a necessity. One in four Japanese – or 31.86 million people – is aged 65 or older.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1