Bank of Japan’s Kuroda offers bleak view on economy, warns of big hit from virus

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda on Wednesday said the coronavirus outbreak could inflict big damage on the economy, stressing the central bank’s readiness to take “appropriate action” to underpin a fragile recovery.

Japan’s economy had been expected to recover in the current quarter, but the epidemic has hurt exports and consumption through a decline in Chinese tourists, Kuroda told parliament.

“If the epidemic is prolonged, it could also affect production,” he said. “We need to be mindful that the impact from the outbreak could be big,” Kuroda said, adding that consumer sentiment is already being hurt from the health crisis.

The remarks underscore a growing concern among BOJ policymakers over the widening fallout from the epidemic, which is hurting an economy already reeling from last year’s sales tax hike and natural disasters that disrupted production.

Heightening fears of recession are piling pressure on the BOJ to follow in the footsteps of other central banks and ramp up stimulus as early as this month’s rate review.

While robust capital expenditure and government spending continue to underpin growth, the fate of Japan’s recovery depends largely on how long it takes to contain the epidemic, Kuroda said.

“We will carefully watch economic and market developments, and take appropriate action as needed,” he said.

Over 60% of Japanese companies said their earnings were being hurt by the coronavirus outbreak, a survey showed on Wednesday, adding to market fears the epidemic could tip the world’s third-largest economy into recession.

But the central bank’s policy decision could be a close call as some at the BOJ feel monetary policy can do little to eradicate fears about the epidemic that are keeping people at home, they said.

Prime Minister Shinzo Abe told the same parliament committee that the government will take steps to protect jobs and mitigate the hit to the economy from the outbreak.

“We’ll closely watch global economic developments, and take sufficient and necessary economic and fiscal policies” to address risks, Abe said.

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