Japan’s economy could regain all the ground it lost during the pandemic much faster than many analysts expect if a vaccine becomes available, according to a prominent economist who was once a favored candidate to become Bank of Japan governor.
“We could see a U-shaped recovery,” Columbia University professor Takatoshi Ito said in an interview Tuesday as global stocks rose to within a whisker of an all-time high, lifted partly by optimism over potential medical breakthroughs. “It relies on having a vaccine, but we could be back where we were before 2022.”
With some analysts expecting Japan’s recovery to take as long as four years, Ito acknowledged he’s among the more bullish economic forecasters. But he pointed to the return of equity markets to pre-coronavirus levels as a sign investors agree a virus cure could make the current global crisis short-lived compared with the last one in 2009.
“The second quarter numbers were shocking, but compared to the financial crisis, the pandemic’s effects may be sharper, but shorter in timeframe,” he said, noting that rebounds in various data signal Japan already is bouncing back from May’s bottom.
Ito is credited with having helped convinced Haruhiko Kuroda to see the virtues of inflation targeting. He was also seen as a candidate to replace his friend as BOJ governor in 2018.
On Japan’s response to the crisis so far, Ito said he sees stimulus from the Abe administration and the BOJ as basically sufficient. Still, he urged the government to go further by spending reserve funds totaling about ¥10 trillion ($94 billion) on things including domestic vaccine development, so Japan isn’t reliant on buying from overseas.
He also said his old friend Kuroda shouldn’t consider stepping down from the BOJ even if Shinzo Abe resigns because of ill health. Abe’s hospital visits in recent days have fueled speculation, given that he resigned once before due to illness.
“Unless there’s some serious reason that prevents him from doing his job, the BOJ governor shouldn’t quit,” Ito said. “It would threaten the future independence of the central bank.”
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