MNI POLICY: BOJ lowers Economic View; Downside Risk Heightens

     TOKYO (MNI) - The Bank of Japan lowered its economic assessment Monday,

reacting to the spread of coronavirus and saying downside economic risks have

heightened.

     "Japan's economic activity has been weak recently due mainly to the impact

of the outbreak of the novel coronavirus. Specifically, exports and production

have declined due to the slowdown in overseas economies since last year as well

as the decrease in external demand mainly from China and the effects of the

global supply chains of stopping production," a BOJ commentary said.

     The bank also pointed to a tightening of financial conditions for small and

medium-sized companies.

     "Although financial conditions are accommodative on the whole, they have

become less accommodative, as seen partly in corporate financing such as the

financial positions of small and medium-sized firm."

     --INFLATION

     The BOJ slightly lowered its inflation outlook, saying, "expectations have

been more or less unchanged from a somewhat longer-term perspective, but

somewhat weak indicators have been observed recently."

     As for the near-term outlook, the BOJ said, "Japan's economic activity is

likely to remain weak for the time being, mainly affected by the outbreak of

COVID-19."

     --OPTIMISM

     But the BOJ stuck to the view that the economy is expected to return to a

moderate expanding trend, supported by a virtuous cycle from income to spending,

with the impact of the virus outbreak waning mainly owing to measures taken by

each country.

     Japan's inflation rate is, however, expected to remain somewhat weak for

the time being, partly due to the effects of the decline in crude oil prices.

     "Furthermore, the effects of recent developments in crude oil prices on

economic activity and prices also warrant attention," the BOJ said.

     "With regard to risks to the outlook, there have been significant

uncertainties over the consequences of the outbreak of COVID-19 and over the

size and the persistence of their impact on domestic and overseas economies,"

the BOJ said.

     "Downside risks seem to have been increasing, and it also is necessary to

pay close attention to their impact on developments in global financial markets

as well as on firms' and households' sentiment in Japan," the BOJ 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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