MNI INSIGHT: BOJ Board Split On Econ Assumption Reliability

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan's growth and inflation forecasts to be

presented at the late-April policy meeting will be more contentious than normal,

as board members currently have differing understandings of the baseline

assumptions offered by bank officials, MNI understands.

     Although all accept the economy will experience a sharp downturn in both Q1

and Q2, there is a greater divergence in opinions as to the assumptions on when,

what shape and how strong the recovery may be.

     BOJ officials are determined to outline both assumptions and forecasts on

April 28, but if economic conditions or the virus itself worsens, the Bank could

follow the U.S. Federal Reserve's lead and skip the release of its quarterly

medium-term outlook.

     --IMF ASSUMPTION

     As for overseas economies, the BOJ will, as normal, compile its forecast

based on the International Monetary Fund's latest predictions.

     The IMF's latest assumption, published this week, sees the pandemic fade in

H2 2020, allowing a gradual lifting of containment measures. Under that

scenario, the global economy is expected to shrink 3% in 2020 and then grow 5.8%

in 2021, helped by fiscal and monetary policy measures, although there was an

acceptance much depended on whether the "pandemic proves to be more persistent"

than hoped.

     --UNCERTAINTIES

     Other than seeing a sharp GDP contraction in Q2, BOJ economists are

struggling to make forecasts for the domestic economy.

     Economic activity in February and March fell sharply and spending in April

will deteriorate sharply following Prime Minister Shinzo Abe's declaration of a

state of emergency, first in 7 prefectures, including Tokyo, Osaka and Fukuoka,

then extended nationwide on April 17.

     The BOJ sees a V-shaped recovery as very unlikely, with many consumers and

businesses still wary to venture into the wider world even with restrictions are

lifted.

     However, Japan's Q2 contraction will be less than those in the U.S. and

Europe where tougher lockdowns have been put in place, the BOJ views. Economists

polled by the Japan Center for Economic Research see a contraction of 11% over

the 3 months and by 3.1% in 2020, before growing 2% in 2021.

     Overall uncertainty over the spread of the virus will continue to weigh on

Japan's economy until deeper lock-downs take effect, with many seeing potential

for recovery stalled until then.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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