MNI INTERVIEW: Stock Markets Could Fall Sharply-Ex-BOJ's Momma

--Stock Markets Could Slide On Recovery Disappointment

--Japan Will Need 2 Yrs To Regain Pre-Covid Levels, Says Momma

By Hiroshi Inoue

     TOKYO (MNI) - World stock markets could fall sharply from current levels if

global recovery disappoints investor expectations, a former Bank of Japan

executive director warned, also telling MNI that Japan's still-worsening economy

will take two years to recover to its pre-pandemic levels despite massive

monetary and fiscal stimulus.

     "It is natural for financial markets to move and bet on the prospect for

economic and corporate profits. But stock markets are overestimating the future

economic recovery from any fiscal and monetary policies," Kazuo Momma, now

executive economist at Mizuho Research Institute, told MNI on Friday.

     "There is the possibility that the coronavirus wanes and a vaccine is

developed earlier than expected, but that possibility is low," he said, pointing

to a grim start to the decade for Japan's economy.

     "Even if the economy hit bottom, it will remain sluggish amid small

fluctuation as economic activity is being restricted by social distancing and

the coronavirus," said Momma, adding: "It will take two years for the economy to

return to the normal level."

     Nor will the unprecedented monetary and fiscal policy moves of recent

months generate inflation, according to Momma, who said that the BOJ appears to

have temporarily stepped back from targeting its 2% inflation goal.

     "It is unthinkable that inflation will appear under the current economic

conditions," he said, "There is no central bank that is worried about

inflation."

     --TANKAN LOWER

     Looking ahead to Wednesday's Tankan survey, Momma said it was a certainty

that business sentiment will worsen sharply from three months ago, which would

impact investment plans, although he noted demand for capex linked to

digitalisation remains solid.

     Many firms, including smaller enterprises, will look to boost investment

plans for the medium- and longer-term, just as soon as funding is secured, he

said, noting that many of Japan's industrial giants are sitting on ample cash

reserves, having learnt lessons from the financial crisis a decade ago.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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