MNI POLICY: BOJ Ponder Global Stock Strength Despite Outlook

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are trying to understand why global

stock markets remain relatively strong, despite a widely expected virus-driven

economic downturn.

     Although the extent of any downturn remains unclear and appears it may vary

regionally, BOJ officials are concerned that as weaker data actually emerges

through April and underlines the depth of the slump, stocks could fall sharply.

     --V-SHAPED RECOVERY UNLIKELY

     The BOJ sees a V-shaped recovery as increasingly unlikely, given Covid-19

will remain a health threat for months to come and it takes longer for people to

normalize their living as infection concerns linger.

     BOJ economists expect the major economic components, such as exports,

industrial production and private consumption to drop sharply in Q2, as

self-distancing and restrictions remain in place and they are unconvinced of a

sharp recovery into the second half of the year.

     There is also a concern that falling stocks would destabilize the wider

financial markets, which in turn will further worsen sentiment and the economy.

     --NO OTHER BASELINE SCENARIO

     The BOJ said on Monday the economy is likely to remain in a "severe

situation" as the virus spreads in Japan and globally, noting "extremely high

uncertainties" over the longer-term outlook, although there will be some sort of

recovery as the impact of the virus wanes through the year.

     The BOJ's global outlook is, as normally, based on assumptions in the World

Economic Outlook released by the International Monetary Fund. The IMF said the

global economy will likely gradually pick up in the second half of this year.

--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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