MNI INSIGHT: Rising Covid Cases Cloud BOJ Consumption Views

Bank of Japan officials are closely watching a jump in Covid-19 cases that could lead to a delay in government stimulus plans meant to help private consumption recover from earlier pandemic lockdowns, MNI understands.

This week, newly confirmed Covid-19 cases nearly doubled from a week ago to over 45,000 in Japan, exceeding the 40,000 mark for the first time since May 18. That has raised concerns of a delay to the start of a government-supported nationwide travel subsidy programme in early July. Tokyo confirmed 8,529 cases on Thursday, for the second straight day above 8,000.

The BOJ has looked for a pickup in the economy in the third quarter based on a return to normal activity, particularly for services. Bank officials also expect private consumption to remain solid in the coming months as post-pandemic demand for services is recovering, though growth this fiscal year could be revised down, (See: MNI INSIGHT: BOJ Likely To Up Price View, But Policy Unchanged).

But the latest Covid-19 numbers are bringing some caution as BOJ officials are concerned that recovery momentum in or after autumn could lag on a combination of the effects of higher retail prices and if the government moves to reimpose pandemic curb measures.

Durable goods prices are expected to rise around autumn as the weaker yen adds to costs for manufacturers. And the impact of earlier lower mobile phone charges on the consumer price index will fully wane in October.