Coronavirus pandemic set to tip Japan into deep recession this year; Bank of Japan seen easing again

Japan is expected to slip into a deep recession this year with the economy set to contract for a third straight quarter in April-June, a <em>Reuters</em> poll showed on Wednesday, as the coronavirus outbreak wreaks havoc on businesses and daily life

Reuters April 08, 2020 11:37:10 IST
Coronavirus pandemic set to tip Japan into deep recession this year; Bank of Japan seen easing again

Tokyo: Japan is expected to slip into a deep recession this year with the economy set to contract for a third straight quarter in April-June, a Reuters poll showed on Wednesday, as the coronavirus outbreak wreaks havoc on businesses and daily life.

Nearly 80 percent of economists polled saw the Bank of Japan’s next move to be an easing of monetary policy. About half said it would happen this month, which would follow the BOJ’s easing of corporate funding strains in March to calm markets jolted by the health crisis.

The pandemic has disrupted supply chains and severely damaged the tourism sector while social distancing rules to contain the spread of the virus has put an additional burden on economic activity, setting Japan on course for a deep recession.

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Representational image. Reuters.

Last month, the Tokyo Olympics were postponed until 2021 as the virus impact worsened, an unprecedented move in the Games’ 124-year modern history.

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Japanese Prime Minister Shinzo Abe on Tuesday declared a state of emergency to fight coronavirus infections in major population centres and rolled out a nearly $1 trillion stimulus package to soften the economic blow.

The world’s third-largest economy is forecast to contract an annualised 3.7 percent in January-March and 6.1 percent in April-June, the March 30-April 6 poll showed.

That would follow an annualised 7.1 percent contraction in the fourth quarter of last year, when the economy was hit by a sales tax hike that was rolled out in October.

It would be the first three straight quarterly falls since similar contractions stretching from October-December 2010 to April-June 2011 around the time of Japan’s March earthquake and tsunami.

The economy is expected to shrink 2.1 percent in the current fiscal year that began on April 1 but rebound 1.6 percent the following year, the poll showed.

Mari Iwashita, chief market economist at Daiwa Securities, warned the economic forecasts could change depending on how long travel bans and social distancing policies need to continue.

“Even if the outbreak calms down in industrialized nations, instability could continue in emerging nations. We may need to brace for the risk of a W-shaped, not V-shaped, recovery,” Iwashita said.

Under the gloomiest scenario, the economy likely fell 5.0 percent in the first quarter and will shrink 10.0 percent in the current quarter, according to the poll.

The coronavirus pandemic could also push down prices as social distancing policies keep shoppers home.

Core consumer inflation, which excludes volatile fresh food costs, will be only 0.1 percent in the second and third quarters, and slip to 0.3 percent in October-December, the poll found.

BOJ policy forecast

The poll also showed nearly 80 percent, or 31 of 40 economists predicted the BOJ’s next policy move would be further easing.

Among economists who said the bank’s next move would be to ease, 16 said the BOJ would expand its stimulus in April and six predicted action in July.

The most likely steps to be taken by the BOJ would be an increase in asset purchases such as corporate bonds and commercial paper, the poll showed.

“We expect the BOJ to focus on steps to support the financial system,” said Izuru Kato, chief economist at Totan Research.

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