MNI INTERVIEW: Concerns As Govt Unwinds Policy; Ex-BOJ Offc'l

Japan needs to ready for the moment the government is no longer backstopping the Covid-hit economy with its support for jobs and smaller companies, a former Bank of Japan executive director has told MNI.

As the country looks toward the rollout of the vaccine, the timing of when Japan can expect a recovery is coming closer but some sectors will not pick up as quickly, Kenzo Yamamoto, now the representative for KYinitiative, said in an interview this week.

"If the coronavirus crisis wanes, demand will recover rapidly and economic activities will rebound sharply," he said.

However, for some businesses, trading conditions will remain tough, even when the economy reopens, he said, adding that a liquidity problem will eventually turn into a solvency problem, but the government will not be able to support financing for all.

LOWER POTENTIAL GROWTH

Yamamoto said that both fiscal and monetary policies are supporting the economy, but prolonged government support has lowered Japan's potential and actual growth rates.

"Looking back, whenever Japan faced big shocks, such as the coronavirus, the Lehman shock, the failures of financial firms and IT bubble, which had occurred roughly every 10 years, the government had increased fiscal spending without fiscal consolidation," Yamamoto warned.

He added that Japan's authorities must support businesses and employees until vaccines fully takes hold. Another issue is how the government handles troubled businesses afterward, accepting that some will possibly need to fail.

"Japan has been doing so. As a result, productivity didn't rise," he said.

The BOJ has kept in step with the government, supporting smaller firms and regional banks, but for how long it maintains the preferred lending scheme for banks at an interest rate of 0.1% is another issue, he added.