Bank of Japan Gov. Haruhiko Kuroda on Wednesday warned that downward pressure on economic activities could grow stronger due to uncertainty over the pace of the country's vaccination rollout after the pandemic-hit Japanese economy shrank more than expected in the first three months of 2021.
Speaking at an online event hosted by a Japanese research institute, Kuroda said the domestic economy remains in a "severe" state and economic activities are at levels lower than before the pandemic. The BOJ will continue to keep a watch on further developments and take additional easing steps if needed, he added.
The governor reiterated the Japanese central bank will consider extending its emergency scheme that has been in place since last year to support corporate funding beyond the end of September, depending on the impact of the COVID-19 crisis.
"In the bank's outlook, it is assumed that the impact of COVID-19 will almost subside in the middle of the projection period, which runs through fiscal 2023, due mainly to progress with vaccinations," Kuroda said in his speech during the event held by the Research Institute of Japan.
"However, the pace of the vaccine rollout and the effectiveness of the vaccines entail uncertainties, and thus there is a risk that downward pressure on economic activity will increase."
Risks to economic activities are "skewed to the downside for the time being" given various uncertainties, including how the differing paces of vaccinations in countries and regions will impact the global economy, the governor said.
Following an annualized real 5.1% contraction in gross domestic product for the January-March quarter, some economists say Japan's economy faces the risk of slipping into a technical recession, typically defined as two consecutive quarters of contraction, as the world's third-largest economy may shrink again in the April-June period.
With vaccinations lagging behind countries such as the United States and Britain, Japan is struggling to curb coronavirus cases. Urban areas like Tokyo and Osaka have been under a third state of emergency over the virus, pounding the services sector, including dining establishments.
In April, the BOJ released an outlook report projecting that its 2% inflation target will not be attainable before Kuroda's term ends in April 2023.
Still, he said keeping the 2% target is important because it is a "global standard," and major central banks, such as the U.S. Federal Reserve, aiming for a common inflation goal should lead to stability in financial markets.
The price situation in Japan contrasts with the United States, where concerns about inflation have grown. In March, Japan's core consumer price index, excluding volatile fresh food items, dipped 0.1% from a year ago, far from the BOJ's elusive 2% target.
Kuroda said weak demand amid the pandemic has kept pressure on prices, but the decline is partly due to vigilance among consumers against COVID-19. Price-cutting to stimulate demand has not spread among companies, and the core CPI is expected to turn positive and rise gradually in line with economic recovery, he said.
"The bank considers that the economy will not fall into deflation again, in which prices see an overall and sustained decline," Kuroda said.
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