Market participants have started to prod the Bank of Japan to take action as the world’s third-largest economy is certain to suffer serious setbacks amid the coronavirus outbreak.

But the central bank is likely to struggle to map out effective steps to grapple with the adverse effects of the novel virus’s spread after years of drastic monetary easing that has failed to bolster the economy and achieve its goal of 2 percent inflation.

With fears escalating about a global pandemic, financial markets are reeling. On Monday, the benchmark Nikkei 225 average plummeted over 1,000 points, or more than 5 percent, and the dollar briefly fell to its lowest level since November 2016 against the safe-haven yen.

A plunge in Tokyo stocks is expected to blur the outlook for the nation’s economy as well as damage business and consumer sentiment at home, while the yen’s sharp appreciation may drag down the nation’s exports, a key driver of economic growth.

Many smaller companies in the tourism, retail and other services sectors have encountered bankruptcy risks as the epidemic disrupts supply chains and decreases the number of visitors to Japan from China.

Some analysts warn the economy may be hit harder by the coronavirus than by the 2008 global financial crisis or the March 11, 2011, Great East Japan Earthquake that triggered the Fukushima nuclear disaster.

As infection cases rise in Japan, “more firms could unnecessarily go bankrupt ahead,” a credit dealer at Mizuho Securities Co. said. “The BOJ should act soon.”

Following the consumption tax hike last October, the economy shrank an annualized real 7.1 percent in the three months through December, its sharpest slide in more than five years.

Meanwhile, the diffusion index in February for sentiment among “economy watchers” — those with jobs sensitive to economic trends, including taxi drivers and restaurant staff — dove 14.5 points from January to 27.4, its worst level in about nine years, the Cabinet Office said.

“A possible downturn in corporate profits would reduce payments of workers, weighing on domestic demand additionally,” said Shunsuke Kobayashi, a senior economist at the Daiwa Institute of Research. “We can’t help but say that the possibility is increasing that the growth of the Japanese economy will lose momentum in the medium term.”

The U.S. Federal Reserve last week conducted its first emergency interest rate cut since the global financial crisis, following an urgent conference call among finance chiefs from the Group of Seven industrialized countries on March 3.

The European Central Bank is also set to lower its deposit rate, charged on commercial bank deposits at the bank, to minus 0.5 percent from minus 0.6 percent on Thursday. The Reserve Bank of Australia has cut interest rates to a record low 0.5 percent.

Senior officials of the BOJ, the Finance Ministry and the Financial Services Agency gathered Monday to discuss how to tackle the yen’s rise, which usually dampens exports by making Japanese products more expensive abroad and eroding overseas revenue in yen terms.

The BOJ, however, has few policy weapons left in its arsenal to alleviate market volatility, given that it has carried out what Gov. Haruhiko Kuroda calls monetary easing of a “different dimension” since he took office in early 2013.

The BOJ already owns around 50 percent of outstanding Japanese government bonds of about ¥1 quadrillion ($9.73 trillion), while pledging to buy ¥80 trillion of them per year.

Further cuts in the negative interest rate of minus 0.1 percent, which have pushed down longer-term interest rates for years, are expected to snap the profitability of the banking sector and hurt returns for insurers and pensions of private companies.

Earlier this month, Kuroda said in an emergency statement that the BOJ will make every effort to ensure financial market stability. Afterward, the yen fell and Tokyo shares rebounded, but the impact of what investors called his “verbal intervention” was limited.

“The BOJ is in a plight” as it has been urged by other major central banks to take “coordinated action,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.

“Even if the BOJ dares to deepen the negative interest rate further, it might be forced to implement measures to ease the side effects of possible excessive declines in long-term interest rates,” he said. “BOJ policy could become more complicated.”

The bank is scheduled to hold a two-day policy meeting starting March 18, where it is expected to expand its lending program for private banks in a bid to prevent smaller firms from facing difficulties raising funds.

Some economists also say the bank may decide to boost purchases of exchange traded funds to make financial market conditions more accommodating.

“A large number of market participants believe that the interest rate gaps between Japan and other nations will narrow down the road. Now is a good time to buy the yen,” a foreign exchange trader at a Japanese security firm said.

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