Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday said that the COVID-19 outbreak could inflict big damage on the economy, stressing the central bank’s readiness to take “appropriate action” to underpin a fragile recovery.
Japan’s economy had been expected to recover in the current quarter, but the outbreak has hurt exports and consumption through a decline in Chinese tourists, Kuroda told parliament.
“If the epidemic is prolonged, it could also affect production,” he said.
“We need to be mindful that the impact from the outbreak could be big,” Kuroda said, adding that consumer sentiment is already being hurt from the health crisis.
The remarks underscore a growing concern among BOJ policymakers over the widening fallout from the outbreak, which is hurting an economy already reeling from last year’s sales tax hike and natural disasters that disrupted production.
Heightening fears of a recession are piling pressure on the BOJ to follow in the footsteps of other central banks and ramp up stimulus as early as this month’s rate review.
The BOJ’s policy rate has stood at minus-0.1 percent for several years and the central bank has been purchasing tens of billions of yen (millions of US dollars) of government bonds and other assets to help keep credit cheap and stave off deflation as the population in the world’s No. 3 economy ages and shrinks.
While robust capital expenditure and government spending continue to underpin growth, the fate of Japan’s recovery depends largely on how long it takes to contain the outbreak, Kuroda said.
“We will carefully watch economic and market developments, and take appropriate action as needed,” he said.
More than 60 percent of Japanese firms said that their earnings were being hurt by the outbreak, a survey showed yesterday, adding to market fears that it could tip the world’s third-largest economy into recession.
However, the central bank’s policy decision could be a close call as some at the BOJ feel monetary policy can do little to eradicate fears about the outbreak that are keeping people at home, they said.
Japanese Prime Minister Shinzo Abe told a parliament committee that the government would take steps to protect jobs and mitigate the hit to the economy from the outbreak.
“We’ll closely watch global economic developments, and take sufficient and necessary economic and fiscal policies” to address risks, Abe said.
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