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The central bank of Japan will maintain its current ultra-easy monetary policy and extend its emergency loan schemes to help the economy recover

Press Release updated: Oct 14, 2020 09:00 EDT

The Japanese economy, like many other major economies, has been hard hit by the global economic impact of the pandemic. In the second quarter of this year, the country recorded its most severe economic slump on record as demand was shattered by the coronavirus.

Weak Price Data

Last month, data released by the Bank of Japan (BOJ) showed that wholesale prices dropped 0.2% from the previous month, the first monthly decrease recorded in four months.

GM Warburg Commercial economists fear that the drop in wholesale prices exacerbates the challenges facing the BOJ as it tries to navigate the economy through this difficult time. Weak consumption, especially in the country’s services sector, will make it more difficult for Japan to reach the bank’s consumer inflation target of 2%.

Economists at GM Warburg Commercial believe the recent weak price data may prompt the central bank to slash its inflation forecasts for this year.

Although Japan’s recovery has thus far been modest, the Bank of Japan has maintained an optimistic view. It has attributed the recovery of the world’s third-largest economy to the boost from its stimulus measures.

Effective Stimulus Measures

Japan’s financial markets are now in a better position than they were a few months ago, although there is still a degree of uncertainty. Borrowing conditions are very accommodative and record growth in bank lending for the past three consecutive months reflects this.

“Stimulus measures implemented by the BOJ to offset the impact of the pandemic have been largely successful in saving businesses who would otherwise not have survived due to a lack of funding. Job losses have been kept to a minimum,” says Harry Woods, Director of Private Clients at GM Warburg Commercial.

BOJ to Maintain Policy

Given the effectiveness of the monetary stimulus measures, it is not surprising that the BOJ has pledged to maintain these measures. At a recent policy meeting, BOJ Governor Haruhiko Kuroda stated that the BOJ would continue with its current policy and loan programs in order to continue to assist the country’s budding economic recovery.

GM Warburg Commercial economists say that once the global fallout from the coronavirus pandemic lessens, Japan’s economy should continue to show further improvement as global demand picks up.

Source: GM Warburg Commercial