MNI INSIGHT: Weaker Q3, Q4 To Lower BOJ FY20 GDP Outlook

Hopes of a 'V-shaped' recovery are dissipating for Bank of Japan economists who see an increasing risk that the resurgence in Covid-19 infections will lower growth forecasts for the current fiscal year, as the pick-up in both Q3 and Q4 will be below current expectations, MNI understands.

The BOJ still sees higher growth in both Q3 and Q4 than that seen in Q2, but staff economists believe there is now a growing chance that BOJ board members will trim the fiscal growth projection from the 4.7% contraction laid out in July, with a change coming as early as the October policy meeting.

At present, the BOJ's baseline scenario is that Japan's economy rebounds substantially in Q3 and picks up further in the three months to December. However, that view assumes no large-scale resurgence or second wave of the virus inflicting fresh strict lockdowns, which will further dampen both corporate and households' medium- to long-term growth expectations.

Currently, infection rates are expanding in Tokyo and the Metropolitan Government has asked restaurants to close from 10PM each evening.

WEAKER OUTLOOK

The BOJ saw notes of caution in the government's latest Economy Watchers Survey, which showed the sentiment index for the current economic climate rose just 2.3 points to 41.1 in July a seasonally adjusted basis, after rising 23.3 points to 38.8 in June.

Although that slowing was an indicator of a decelerating recovery, the forward indicator was gloomier, with the index for two to three months ahead showing a first decline since April, down 8.0 points to 36.0 after rising 7.5 points to 44.0 in June, suggesting a bumpier road ahead through Q4

The survey indicates whether respondents with jobs most sensitive to economic conditions -- taxi and truck drivers, department-store sales staff and restaurant and shop owners -- think economic conditions have improved or worsened over the last three months.