BOJ chief says Japan's economic recovery likely modest amid pandemic

Japan’s economy is in a “severe” situation and the pace of its recovery will be moderate amid heightened vigilance against the coronavirus pandemic, Bank of Japan Gov. Haruhiko Kuroda said Thursday.

Speaking in a virtual meeting of BOJ branch managers, Kuroda also said the central bank will ease monetary policy further to boost the economy if necessary.

“Domestic economic conditions remain severe due to the impact of coronavirus infections at home and abroad but we have seen a pickup,” Kuroda said.

“The pace (of recovery) will likely be rather moderate while there remains a sense of alert against infections,” he added.

To stem a further spread of the virus, Prime Minister Yoshihide Suga has declared a fresh state of emergency in 11 of the country’s 47 prefectures including the Tokyo metropolitan area as well as Osaka, Aichi and Fukuoka prefectures

The declaration, effective through Feb. 7, has rekindled fears of a double-dip recession. The 11 prefectures make up over half of the country’s economic output.

The first emergency declaration over the virus, issued in the spring of 2020, led to a sharp economic contraction as consumption and business activity took a hit.

The pandemic has put the bank’s 2% inflation goal further out of reach, raising the likelihood that its ultraloose monetary policy will continue for an extended period.

Kuroda said the consumer price index will likely fall “for the time being,” due to the impact of the pandemic, falling crude oil prices and the government’s subsidy program to spur domestic travel demand.

Data from the BOJ showed the same day wholesale prices in Japan fell 1.2% in 2020, marking the first drop in four years as the global coronavirus pandemic sent commodity prices sharply lower and hurt economic activity.

Energy-related prices tumbled in the past year with petroleum and coal products plummeting 16.3% from a year ago, the largest decliner. Prices of chemicals and related products fell 4.2%. Electricity, gas and water slipped 5.5%.

“With coronavirus cases resurging globally at the beginning of 2021, we will closely watch economic developments both at home and abroad and gauge the impact of the pandemic on wholesale prices,” a BOJ official said.

The remarks came ahead of the BOJ’s two-day policy meeting next week, when it will issue fresh quarterly growth forecasts.

Sources have said the BOJ is likely to slightly revise up its economic forecast for next fiscal year on hope the government’s stimulus package will moderate the pain from state of emergency measures to combat COVID-19.

Having already extended a raft of measures last month to ease funding strains for firms hit by the pandemic, the BOJ is expected to hold off ramping up stimulus at the Jan. 20-21 policy meeting, the sources said.