BOJ’s Kuroda Says Will Act If Needed Amid High Virus Uncertainty

Bank of Japan Governor Haruhiko Kuroda said he stands ready to act if needed amid heightened uncertainty over a resurgence in the pandemic though he still doesn’t see a pressing need to extend or change existing virus-response measures.

Speaking after keeping policy on hold and cutting a growth forecast for the current fiscal year, Kuroda said the BOJ’s measures had helped an economy that is digging itself out of a severe predicament.

“Uncertainty remains high and downside risk remain large for the economic outlook. Globally the spread of the virus hasn’t been contained including in Europe and the U.S.,” Kuroda said. “I believe the uncertain situation will continue with the trajectory of the virus continuing to impact domestic and overseas economies.”

The BOJ now sees a more volatile path for the economy with a bigger contraction of 5.5% in the year ending in March followed by better growth in the following 12 months of 3.6%.

BOJ’s Kuroda Says Will Act If Needed Amid High Virus Uncertainty

The remarks came as the risks for Japan’s export-reliant economy increase with the virus surging again in the U.S., France, Germany and the U.K. A return to partial lockdowns in some parts of Europe and the prospect of an even more prolonged pandemic are helping fuel stock market falls and further yen gains.

While the BOJ is expected to eventually extend its virus-support program beyond a March deadline, the governor’s comments indicated the BOJ was looking to stick with its existing measures in place barring a further deterioration in circumstances.

“Kuroda indicated his vigilance over financial markets and the outcome of the U.S. election,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, following the briefing. “While refraining from adding a gloomy tone to markets, he signaled his readiness to act.”

What Bloomberg’s Economist Says

“Fresh waves of Covid-19 cases in Europe and a stronger yen associated with uncertainty over the U.S. presidential election are cause for some concern. We don’t see any imminent shift in policy on the horizon, but the BOJ needs to keep up its guard against potential shocks to the economy.”

--Yuki Masujima, economist

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The BOJ chose to stand pat just hours before the European Central Bank is set to deliver its own policy decision. The ECB is expected to hold fire, while signaling more stimulus in the works to combat the impact of the virus’s recent spread, though speculation is growing that it may move early.

While Japan has had far fewer virus cases than many other developed countries, the surge in Europe and the U.S. casts a shadow over the outlook, despite the relative success of policy makers in propping up the economy. The number of bankruptcies is actually down from last year and the jobless rate has remained low at 3% for now.

The Japanese currency this week strengthened to a five-week high against the greenback amid concern over the impact of the worsening pandemic on global economic activity, and strengthened to 104.26 against the dollar following Kuroda’s comments.

The Nikkei 225 stock index closed down 0.4% after clawing back some of the earlier losses following the previous night’s tumble on Wall Street.

BOJ’s Kuroda Says Will Act If Needed Amid High Virus Uncertainty

​The BOJ’s ramped-up asset buying has helped keep markets relatively stable compared with earlier in the year while around $1 trillion in loan programs has ensured struggling firms can access credit rather than going bust.

​“I’m not sure if the BOJ really needed to cut its 2020 GDP forecast this much. Monthly data suggest growth won’t be terrible from here,” said Yoshimasa Maruyama, economist at SMBC Nikko Securities. “A deeper negative rate is out of the question when the financial system is hurting more during a slump,” he added.

BOJ outlook projectionsNew ForecastPrevious Forecast
Fiscal 2020 GDP-5.5%-4.7%
Fiscal 2021 GDP3.6%3.3%
Fiscal 2022 GDP1.6%1.5%
Fiscal 2020 CPI-0.6%-0.5%
Fiscal 2021 CPI0.4%0.3%
Fiscal 2022 CPI0.7%0.7%

On inflation, the bank trimmed its forecast for this fiscal year, citing the impact of government-sponsored discounts on travel packages to help regional economies and the tourism industry.

“What’s missing here is a discussion over how they are going to achieve the price target,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official. He also flagged the possibility of trouble ahead if the yen continues to appreciate given the BOJ’s lack of additional policy tools.

©2020 Bloomberg L.P.

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