MNI POLICY: BOJ Keeps Baseline View Despite Covid Spread

The Bank of Japan is set to keep its baseline economic scenario unchanged, despite the resurgence of Covid-19 infections in many parts of the world MNI understands. Bank officials see exports and production levels holding up as overall demand remains solid, although weakness is still seen across the services sector.

There is a concern that domestic demand could slow in coming months as wages and bonuses slow on the back of falling corporate profits and weaker face-to-face services. However, the BOJ sees that weighing on the growth outlook for services, but not the wider economy.

Businesses remain cautious over lowering retail prices to boost demand as their Covid-19 prevention measure costs are rising, with is slowing any worsening of inflation expectations.

However, the economy is still facing further downside risks as the infections spread, but that was – to a large degree – already factored into the central bank's assumptions.

NO LOCKDOWN ASSUMPTION

The BOJ's baseline scenario assumes Covid-19 will not spread on such a large scale (domestically??) that wide-ranging public health measures and strict lockdown measures are not implemented.

BOJ economists expect October consumer spending to have been stronger than expected on the back of pent-up demand and government stimulus measures, although activities are likely to have slowed in November.

A third supplementary budget for this fiscal year will give support to the economy and will prevent the economy from deteriorating sharply unless lockdown measures will be implemented.