MNI INTERVIEW: Virus May Trigger Japan Recession: Ex-BOJ Momma

--Business Sentiment To Worsen In March Tankan: Momma

By Hiroshi Inoue

     TOKYO (MNI) - Japan's economy could contract in the first quarter, tipping

the country back into recession, as the fallout from the coronavirus outbreak

delays a recovery from the sharp downturn seen in Q4, a former Bank of Japan

chief economist told MNI in an interview recently.

     "Looking ahead, the economy for the first quarter also will be severe. But

it is uncertain how the impact of the coronavirus has affected the economy as

data isn't available yet," said Kazuo Momma, now executive economist at the

Mizuho Research Institute.

     Japan's economy posted a first contraction in five quarters in Q4, down

1.6% q/q, or an annualized -6.3%, weighed by weak private demand in the wake of

an October sales tax hike and a string of natural disasters.

     "The contraction in Q4 was largely within forecast. Economists had expected

the economy to contract about an annualized 4%. A contraction of 5% or 6% is in

the allowance, margin of error," Momma said.

     "Capital investment was weaker than expected due partly to the reaction to

the last-minute spending before the tax hike. But the underlying trend isn't so

weak, although capex is expected to slow," he said.

     --BUSINESS SENTIMENT TO WORSEN

     The March Tankan will likely show sentiment among both manufacturers and

non-manufacturers will worsen sharply from December's levels, as the negative

impact of the coronavirus and slowing economic activity spreads, Momma said.

     Policymakers will likely say the underlying trend remains solid as the

slowdown is temporary, and will pick up around the summer, Momma said.

     He warned, however, that even if the downturn is short-lived but

significant, unemployment and corporate profits would worsen - and slowing

corporate profits would further impact sentiment into the Tankan survey.

     The government has already implemented measures to help the economy and any

further action would depend on the severity of the coronavirus outbreak, Momma

said.

--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

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