Global markets welcomed the new week with the Bank of Japan Summary of Opinions, which includes the assessments of economic and financial developments. The report said Japan’s economy was in an extremely serious condition, with the impact of the novel coronavirus (Covid-19) in Japan and abroad, although economic activity continued gradually. The economy is expected to continue to recover and return to a steady growth path when the downward effects of the outbreak disappear, the report said, adding that recovery is more likely as of the second half of the year.

Despite the fact that there remain high uncertainties for the future, especially for foreign demand, the pace of recovery is expected to be moderate, economic activity is likely to return to the levels reached before identifying Covid-19 in 2022 fiscal year.

In this context, in which recovery will be delayed in the event of a second wave, the report underlined that the developments regarding economic activities depend on the balance between the outcomes of the pandemic and public health and macroeconomic measures. Continuation of the downward pressures on economic activity may cause problems for households and firms, and there might be a vicious circle within the range of unemployment and loss of income.

Due to the Covid-19 and the low course of international crude oil prices, the disinflationary pressure was predicted to be strong in the annual rate of change in the consumer price index (CPI). From a wide perspective, it is likely to enter the targeted path, but it is not possible to gain momentum towards 2 percent inflation in the current forecast year due to the moderate economic recovery rate.

In response to Covid-19, the increase in the amount of monetary expansion of BoJ since March had positive effects in maintaining stability in financial markets and ensuring smooth corporate finance.

The report stated that the current priority of monetary policy is to contribute to the maintenance of businesses and employment by continuing to support corporate finance, and warned that fiscal and monetary policies should cooperate closely. It also indicated that the responses to the policy measures need to be carefully examined, taking into account the risks that growth prospects could fall further and this could continue for a long time.

 

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