Bank of Japan’s Kuroda offers bleak view on economy, warns of damage from coronavirus

By Leika Kihara

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

The remarks came as fears of recession put pressure on the BOJ to follow in the footsteps of other central banks and ramp up stimulus at this month’s rate review.

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 was already being hurt.

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

Robust capital and government spending continue to underpin growth, but the 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.

Prime Minister Shinzo Abe told the same parliament committee that the government would take “sufficient and necessary” fiscal steps to fend off economic threats.

NO EMERGENCY MEETING?

The epidemic has dashed hopes that Japan’s economy will rebound from the current quarter’s expected weakness and sustain a domestic demand-driven expansion.

Kuroda has repeatedly said the BOJ won’t hesitate to ease further if risks threaten its elusive 2% inflation target. But some at the BOJ feel monetary policy can do little to eradicate fears about the epidemic, sources familiar with its thinking said.

Kuroda had already pledged on Monday to pump more liquidity into markets and step up asset buying to calm markets.

Many BOJ policymakers feel they have done enough for now and are in no rush to do more, at least before their rate review on March 18-19, they said.

Some market players speculate the BOJ may take policy action in an emergency meeting before the scheduled rate review, similar to the Federal Reserve’s move in the United States.

“When the situation is changing day by day, it might make sense to scrutinize developments carefully rather than act too hastily,” one of the sources said on condition of anonymity because of the sensitivity of the matter.

(Reporting by Leika Kihara, additional reporting by Kaori Kaneko; editing by Larry King)

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