Pandemic set to tip Japan into deep recession this year
08 April, 2020
Japan is likely to put on 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 lifestyle.
Nearly 80% of economists polled saw the Bank of Japan's next proceed to be an easing of monetary policy. About 50 % said it could 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 financial activity, setting Japan on course for a deep recession.
Last month, the Tokyo Olympics were postponed until 2021 as the virus impact worsened, an unprecedented move in the Games' 124-year modern history.
Japanese Prime Minister Shinzo Abe on Tuesday declared circumstances of emergency to fight coronavirus infections in major population centers and rolled out a practically $1 trillion stimulus package to soften the monetary blow.
The world's third-largest economy is forecast to contract an annualized 3.7% in January-March and 6.1% in April-June, the March 30-April 6 poll showed.
That could follow an annualized 7.1% contraction in the fourth quarter of this past year, when the economy was hit by a sales tax hike that was rolled out in October.
It could 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 likely to shrink 2.1% in today's fiscal year that commenced on April 1 but rebound 1.6% the next year, the poll showed.
Mari Iwashita, chief market economist at Daiwa Securities, warned the monetary forecasts could change according to how long travel bans and social distancing policies have to continue.
"Even if the outbreak calms down in industrialized nations, instability could continue in emerging nations. We might have to brace for the chance of a W-shaped, not V-shaped, recovery," Iwashita said.
Under the gloomiest scenario, the economy likely fell 5.0% in the first quarter and can shrink 10.0% in the current quarter, based on the poll.
The coronavirus pandemic may possibly 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% in the next and third quarters, and slip to 0.3% in October-December, the poll found.
The poll also showed almost 80%, 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 is always to ease, 16 said the BOJ would expand its stimulus in April and six predicted action in July.
The probably steps to be studied by the BOJ will be a rise in asset purchases such as for example corporate bonds and commercial paper, the poll showed.
"We expect the BOJ to give attention to steps to aid the economic climate," said Izuru Kato, chief economist at Totan Research.
Source: japantoday.com
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