The Japanese economy has started to pick up steam. However, any recovery would likely be modest. This is due to lingering pain on the economy from the coronavirus pandemic, Bank of Japan Governor Haruhiko Kuroda warned on Thursday.
The world’s third-largest economy is suffering from a resurgence in COVID-19 infections. Record cases were reported in the western region of Osaka, prompting authorities to enforce targeted lockdown measures.
The central bank’s assessment was bleaker than three months ago for two of Japan’s nine regions. It has maintained its view on the remaining areas, hinting at careful optimism on fragile recovery outlook.
Due to a rebound in global demand and the boost from the government’s massive fiscal spending, Japan’s economy will likely improve.
At a meeting with the BOJ’s branch managers, he warned of continued weakness in service consumption. He said that the recovery pace, however, will be modest as caution over the pandemic remains.
The BOJ revised down its view for two areas in a quarterly report on regional economies. Largely, it was due to continued weakness in service consumption.
For the remaining areas, the assessment was the same. The report highlighted a growing divergence between exporters and retailers.
The exporters were benefiting from a booming global demand. At the same time, the retailers suffered from the hit to consumption from the pandemic.
In the report, a parts maker in eastern Japan said they saw a sharp increase in electronic parts orders for data centers, smartphones, and personal computers.
20% Fewer Shoppers at Department Stores and Other Outlets
There have recently been 20% fewer shoppers at department stores and electronics outlets than in mid-March due to the recent spike in infections. This was according to Hirohide Kouguchi, head of the BOJ’s Osaka branch.
He told a news conference that they see a widening gap between strong exports and weak consumption.
The country’s economy has emerged from last year’s slump caused by the coronavirus’s support from exports.
However, the outlook for consumption is gloomy due to slow vaccine rollouts and the renewed surge in infections.
While a recovery in external demand and the effect of huge fiscal stimulus will underpin Japan’s recovery, risks were skewed to the downside.
Downside risks remain high, he said. That includes the effect of targeted curbs on major cities’ activity to prevent the spread of the virus, he added. Such cities are Tokyo and Osaka.
On monetary policy, Kuroda reiterated the BOJ’s stance. That is of patiently maintaining its powerful monetary easing to achieve its 2% inflation target.