Quantcast
BOJ member says swift action needed if COVID-19 delays economic recovery - Metro US

BOJ member says swift action needed if COVID-19 delays economic recovery

A man wearing a protective mask stands in front of the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo

TOKYO (Reuters) – Bank of Japan board member Makoto Sakurai said on Wednesday the central bank must take “swift and appropriate” action if the coronavirus shock delays the country’s economic recovery.

If the pandemic takes longer than expected to contain, more companies could be pushed under, saddling commercial banks with bad loans and threaten Japan’s financial system, he said.

“At present, financial institutions have sufficient capital so there is no big concern over Japan’s banking system. But we need to be prepared to take swift action, with a close eye both on the economy and the banking system,” Sakurai said in a speech to business leaders in Fukui prefecture.

The remarks came ahead of the BOJ’s rate review next week, when the central bank is likely to cut its growth and price forecasts, but leave monetary settings unchanged.

They also underscore a growing concern in the BOJ over the additional pain COVID-19 could inflict on commercial banks, many of which are suffering from years of ultra-low interest rates.

“If Japan’s economic recovery is delayed, that could hurt growth and the banking system. As such, it’s critical for us to act swiftly and appropriately as needed in coordination with the government and other central banks,” Sakurai said.

Japan’s economy suffered its biggest postwar slump in the second quarter. Analysts expect any rebound to be modest as uncertainty over the outlook weigh on consumption and capital spending.

Sakurai said while Japan’s economy was likely to gradually recover, it remained in a severe situation.

Inflation may also not accelerate much for some time, as companies cope with a tight labour market with automation rather than wage hikes, he added.

“There needs to be deeper scrutiny on how structural changes in the economy are affecting prices,” he said.

Sakurai also said the BOJ must ensure inflation expectations do not fall too much, as firms and households will put off spending if they expect prices to fall for a prolonged period.

“Even if actual price rises are slow, it’s important to maintain inflation expectations in positive territory to prompt private entities to keep spending,” he said.

(Reporting by Leika Kihara; Editing by Chris Gallagher, Shri Navaratnam and Kim Coghill)

More from our Sister Sites