Board Member Flags BOJ Concern Over Risks of Prolonged Pandemic

Bank of Japan board member Makoto Sakurai warned that the central bank must be ready to act quickly if protracted fallout from Covid-19 harms the economy and financial system. Speaking to business leaders in the western Japanese city of Fukui via an online meeting, Sakurai indicated that the possibility of the pandemic taking longer-than-expected to

die down was a concern on the BOJ’s radar. His comments come amid a resurgence of virus cases in Europe and renewed restrictions in some countries that threaten to slow a recovery in global economic activity. Sakurai has backed Governor Haruhiko Kuroda’s decision at every meeting and some BOJ watchers see him as a gauge of what the core of the nine-member board is thinking. The bank isn’t expected to change policy at its meeting next week, according to people familiar with the matter.

A slower-than-expected recovery could lead to an increase in unpayable debt, job losses and bankruptcies that would lower the country’s growth potential as the burden of bad loans put pressure on the financial system’s ability to lend money and support the economy, Sakurai said. Restoring the forward-looking growth cycle created by the BOJ and government’s policy mix over the last seven years would have to wait until the economy was fully recovered, he added.

Despite an uptick in domestic virus cases in mid-summer, Japan has managed to contain infection levels well below levels recorded in most other developed nations. Still, the country’s reliance on global demand means that even if the spread of Covid-19 is kept under control in Japan, the economy could still suffer if the global pandemic rages on.

©2020 Bloomberg L.P

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