BOJ Cuts Growth Forecast But Flags Policy Pause On Recovery Prospects

“Japan’s economy will likely improve as a trend as the impact of the coronavirus pandemic gradually subsides, though the pace of recovery will be moderate,” the report said.

“Risks to the economic and price outlook are skewed to the downside,” it said, adding the BOJ’s projections are based on the assumption that Japan can avert another lock-down triggered by a huge second wave of infections.

Japan’s economy is bottoming out after suffering its worst postwar slump in April-June, thanks in part to a rebound in exports and output. But weak consumption and capital spending is likely to keep any economic recovery modest, analysts say.

While Kuroda has repeatedly vowed to ramp up stimulus if needed, a dearth of policy ammunition may mean there is not much the BOJ can do beyond rolling over its crisis-response programme or hope the government will deliver another spending package.

Prime Minister Yoshihide Suga said on Thursday he would consider taking “budgetary steps” to support an economy hit by the pandemic, suggesting the chance of a third extra budget to fund new stimulus.

“If the government decides to roll out another package of steps to respond to the health crisis, the BOJ may respond by taking steps to aid corporate financing,” said Izuru Kato, chief economist at Totan Research.

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