TOKYO — A resurgence of coronavirus infections in Europe and the United States has dampened the Bank of Japan’s outlook for the economy, despite a rebound in business activity in recent months.
“The economy remains shrouded in a high degree of uncertainty and has significant downside risks,” warned Haruhiko Kuroda, governor of the central bank, in a press conference on Thursday after a two-day policy meeting during which the central bank decided to maintain its ultra-easy monetary policy.
“In Europe, the coronavirus pandemic has yet to be brought under control and more restrictions have been imposed on people’s activities.”
In its quarterly outlook report, the bank provided a median projection of economic growth for the year ending March of minus 5.5% versus minus 4.7% predicted three months earlier.
Kuroda noted, however, that there were some bright spots. China is seeing a steady economic recovery after it managed to stop the spread of coronavirus. He said also that despite the outbreak, the U.S. is also enjoying a strong economy. Likewise in Japan, IT companies are posting healthy earnings, even as companies in the service sector such as hotels, restaurants and transportation remain under pressure, Kuroda added.
He signaled that the BOJ intends to maintain its funding support facilities for businesses, until these service sector companies emerge from the crisis. He said that the BOJ will continue to implement its three-pronged credit facilities — equity purchases, U.S. dollar supply and yen-funding support — adding that “any of these facilities can be reinforced as necessary.”
In addition to the worse economic outlook, the bank also now expects consumer inflation to come in at minus 0.6%, compared with the minus 0.5% in the earlier forecast.
The BOJ said that the downward revision is due to a recovery delay in services demand but added that it now expects a growth rate of 3.6%, instead of 3.3%, for the fiscal year ending March 2022.
The central bank report also said that the economy is likely to improve on the back of aggressive fiscal and monetary measures, adding, however, that “the pace is expected to be only moderate.” It said that “exports and industrial production have improved,” though “the employment and income situation has been weak.
Analysts had expected a sharp rebound in the economy in the July-to-September third quarter, led by export growth in automobiles and electronic parts. But the pace of recovery is expected to slow over the coming months amid continued uncertainty about the pandemic.
With another economic stimulus package expected from the government of Prime Minister Yoshihide Suga by early next year, the BOJ is expected to refrain from any change in direction while assessing the trajectory of the recovery for now.
The central bank kept its short-term interest rate target unchanged at minus 0.1% and maintained a goal of steering long-term rates to around zero. The BOJ kept its pledge to buy Japanese government debt without limit.
Emergency funding facilities are also maintained for businesses hit by the coronavirus. An equity purchase program of up to 12 trillion yen ($115.2 billion) a year is also kept unchanged.
Under the emergency funding facilities, due to expire at the end of March, a total of 130 trillion yen in funds have been made available to businesses and families that are suffering the impact of the pandemic.
The amount includes purchases of up to 20 trillion yen in corporate bonds and commercial paper and as much as 110 trillion yen in interest-free funds for up to one year to commercial banks that are lending to businesses and families.
As of the end of August, the BOJ has accepted about 48 trillion yen in loans from commercial banks.