Pandemic heightens chance Japan will slide back into deflation: poll
15 June, 2020
The coronavirus pandemic has raised the chance Japan's economy will slip back to deflation as social curbs to prevent the spread of the condition hits businesses and consumers, most analysts polled by Reuters said.
With the world's third-largest economy set to suffer a far more than 20% contraction this quarter, over half the analysts surveyed by Reuters bet the Bank of Japan will further extend its already substantial monetary stimulus.
"Even following the pandemic is contained, Japan's result gap will unlikely return to positive territory this year and then," said Hiroshi Ugai, chief economist at JPMorgan Securities Japan. "Which means Japan may undergo a mild deflation."
When asked whether the pandemic could hint Japan back to deflation, 23 of 40 analysts polled said the probabilities were either "large" or "high." The rest said the chance was low.
Japan's core consumer rates, which exclude volatile fresh meals but includes energy costs, are seen falling 0.5% in today's fiscal year closing in March 2021, the poll conducted between June 2-11 showed.
Core client inflation is projected going to a modest 0.3% next fiscal year, based on the poll.
With business activity hit by lockdown measures from April through late May, Japan's overall economy is likely to shrink an annualised 21.3% in April-June, marking the 3rd straight one fourth of contraction, the poll found.
GDP was seen rebounding 8.0% in the 3rd one fourth and 5.4% in the ultimate quarter of 2020.
The economy will shrink 5.2% this fiscal season before recovering to 3.2% growth next calendar year, the poll showed.
Sixty-five percent of analysts polled likely the BOJ's next move to be a further growth of stimulus, although this is down from almost 80% in the last poll.
The government issued a state of emergency in April requesting citizens to stay home and businesses to shut.
Although the state of crisis was lifted in later May, now there is uncertainty how quickly businesses will re-open. The necessity for social distancing policies could hurt gains for most retailers, analysts say.
"Economic activity features restarted in a number of phases but there's still a threat of another wave of infection. Which will keep consumers cautious," explained Mari Iwashita, chief market economist at Daiwa Securities.
The BOJ eased monetary policy for a second direct month in April and created in-may a new lending facility to channel funds to small firms hit simply by the pandemic.
The government has organized two spending packages worth a combined $2.2 trillion to help ease the pain on an market already headed for deep recession.
Source: japantoday.com
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