MNI INSIGHT: BOJ Outlook Concern Despite Higher Q3 GDP

The Bank of Japan is growing increasingly concerned over the outlook for Japan's economy beyond the fourth quarter as the spread of coronavirus continues to restrict economic activity, MNI understands.

Bank officials expect the momentum for economy to weaken in the fourth quarter and into the first quarter of 2021, depending on the impact of the spread of the coronavirus.

Despite the modest upward revision in Japanese Q3 GDP data, the BOJ remains cautious as people are refraining from going out and restaurants have been requested to shorten their business activities and hours. The government has requested people to reduce their mobility.

GDP REVISED UP

Japan's GDP grew 5.3% on a quarterly basis, or by an annualized 22.9%, revised from +5.0%
q/q and 21.4% y/y respectively, boosted by stronger capital investment and private consumption.

Bank officials judged both exports and production in addition to private spending for the third quarter were stronger than expected on the back of a recovering global economy and the government's subsidies.

They expect both exports and production to remain solid for the fourth quarter but expect private consumption to lose momentum, which in turn would revive concerns over liquidity problems at face-to-face service businesses.

Japan's GDP for the fourth quarter is expected to rise q/q but it will be strongly affected by private consumption in late November and December, BOJ economists warn.

Private consumption has been hit by the spread of the coronavirus since mid-November and the number of crowds in tourist attractions has been falling.

Bank officials cannot clearly predict how private spending has evolved in November because of the lack of economic data but they are gathering anecdotal information.

SPENDING, PROFITS' SEASON

People tend to spend more money in December and corporate profits and sales are apt to rise in December.

However, businesses are refraining from holding year-end and new-year parties, which will negatively impact on restaurants and eating and drinking services.

Moreover, BOJ economists are paying great attention to the impact of the spread of coronavirus in the U.S. and Europe on global trade and Japan's exports.

The economists don't expect the recovery of the global economy to halt now as both the U.S. and Chinese economies are recovering.

The policymakers will incorporate the impact of a third supplementary budget this fiscal year into economic growth forecasts at the January meeting, when they review the medium-term outlook for economic growth and the inflation rate.