Exclusive: BOJ to project economic contraction as pandemic damage deepens – sources

Exclusive: BOJ to project economic contraction as pandemic damage deepens – sources

© Reuters. FILE PHOTO :A security guard walks past in front of the Bank of Japan headquarters in Tokyo

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is likely to make a rare projection this month that the world’s third-largest economy will shrink this year, as the coronavirus pandemic threatens to push the country deep into recession, sources familiar with its thinking said.

It would be the first time the BOJ has forecast a full-year contraction since 2014, when a domestic sales tax hike triggered an economic slump.

But the BOJ, in forecasts couched with unusually high levels of uncertainty, will cling to the view that after a severe downturn this quarter, Japan’s economy will gradually rebound toward the end of this year, the sources said.

“Given what’s happening now, it’s hard to come up with a forecast of positive economic growth,” one of the sources said.

“Any projection the BOJ makes shouldn’t be too out of line with how the general public feels about the economy,” another source said, a view echoed by two more sources.

There is no consensus within the BOJ yet on whether such a gloomy projection would warrant additional monetary easing, as much would hinge on how long it takes for the pandemic to be contained, they said.

The sources spoke on condition of anonymity due to the sensitivity of the matter. The BOJ could not be reached for comment.

The BOJ will release fresh quarterly growth and price projections at its next rate review on April 27-28.

In its last projections made in January, it expected the economy to grow 0.9% in the year that began in April.

A new Reuters poll showed analysts expect the economy to shrink 2.1% this year as the outbreak wreaks havoc on business and daily life, with a majority projecting the BOJ to ramp up stimulus in April.

The economy is forecast to shrink by an annualised 3.7% in January-March and 6.1% in April-June, the poll showed, after a sharp contraction late last year.

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

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