MNI INSIGHT: BOJ Concern Over Q2 Contraction, Overseas Dip

By Hiroshi Inoue

     TOKYO (MNI) - Japan's economic outlook has deteriorated from that seen by

the Bank of Japan as recently as the late April board meeting, as officials see

increased social distancing and the extension of the state of emergency further

restricting activity, MNI understands.

     With a worse than originally feared outcome now expected in many sectors of

the economy this quarter due to the extended state of emergency, BOJ officials

are looking to the third quarter for the first realistic chance of a pick up in

GDP, although there are no great expectations of a sharp increase in exports to

China being a driving force.

     --OFFSHORE DEMAND

     The performance of overseas economies in coming months is also a concern,

particularly how they balance the opening up of their economies against the risk

of a 'second spike' in Covid-19 infections.

     the BOJ still utilises the International Monetary Fund's prediction of the

global economy to recover moderately in the second half of the year in its own

outlook, although officials are skeptical about a quick recovery for Japan's

exports.

     Sales to China are expected to pick up very gradually in coming months, but

exports to the U.S. and Europe are likely to continue on a downward path for the

foreseeable future.

     -ECONOMY WATCHERS

     Bank officials await Wednesday's release of the April Economy Watchers

Survey to get an early look at how the consumer-facing sectors of the economy

are faring after the emerging measures were  introduced in aPRIL.

     The survey fell sharply in February to lows not seen since the Great East

Japan Earthquake, the BOJ said, before the introduction of social distancing

measures saw the index deteriorate further and now the BOJ expects it to fall

further in April as the service sector was again hit hard, with no immediate

respite seen.

     With many uncertainties still at play regarding the spread of the virus and

the consequences of consumer demand, it is impossible for BOJ policymakers to

forecast the coming quarters with any degree of accuracy other than pointing to

a possible delay in the recovery.

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

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