MNI INTERVIEW: Ex-BOJ Sekine: Protecting Employment Most Vital

As the Covid-19 pandemic lingers, protecting employment should become more important than achieving the 2% price target for the government and the Bank of Japan so as to prevent the potential growth rate from falling, a former BOJ chief economist said.

"I'm very concerned about the impact of Covid-19 on the labour market situation as a worsening there will lower Japan's potential growth rate," Toshitaka Sekine, professor at the School of International and Public Policy at Hitotsubashi University, told MNI on Friday.

Sekine emphasized that the government and the BOJ will have to fully support the labour market until the coronavirus wanes.

Although the measures taken so far to facilitate corporate financing and stabilize financial markets have been "successful" from the labour market's point of view, a liquidity problem will morph into a corporate solvency problem if Covid-19 continues and the government and the BOJ will have to prevent the ripple effect on labour market conditions, he said.

CAPEX

Sekine identified capital investment as the next area of concern. "Firms are refraining from implementing capex amid the heightened uncertainty about future demand," he said adding that the caution is evident in the results of the BOJ Tankan survey and the bank's quarterly regional economic report. Although capex levels are holding for now, "I have misgivings if coronavirus is prolonged," he said.

Turning to the economy, Sekine said both exports and production are doing relatively better than other economic components.

"Fortunately, the Chinese economy is recovering. If the recovery continues, both exports and production are expected to be firm, although a sharp recovery is unlikely," Sekine said.