TOKYO – The Bank of Japan on Thursday downgraded its assessments of all nine regional economies for the second straight quarter, the first such decision in more than 11 years, as the coronavirus pandemic continues to impact a wide range of industries.
In its quarterly Sakura report, the central bank said the regional economies had deteriorated or were in a severe situation compared to April. Governor Haruhiko Kuroda said the BOJ will implement further monetary easing if necessary to support the economy.
The BOJ last cut all regional assessments for a second straight quarter in October 2008 and January 2009 in the wake of the global financial crisis following the collapse of Lehman Brothers.
The Japanese economy “has been in an extremely severe situation” due to the pandemic, Kuroda told a teleconference with the bank’s regional branch managers earlier in the day.
But he also said the economy “will pick up with an expected rise in output, an accommodative monetary environment and the government’s economic stimulus packages once the virus is subdued.”
The BOJ will closely monitor the impact of recent floods in southwestern and central Japan on the country’s economy, while pledging to maintain financing systems and ensure smooth settlements, Kuroda added.
In the report, the BOJ particularly warned of weaker consumption as well as deterioration in the employment and income situation, lowering its assessments of the components for all the nine regions.
The move followed the social and business restrictions under the state of emergency, which was declared in April and lifted the following month.
The report cited concerns among many companies from a wide range of sectors over sharply falling global demand and weak domestic spending.
“Exports have further declined due to a sudden slowdown in global auto sales caused by the coronavirus pandemic,” a transportation equipment maker in the Kyushu-Okinawa region was quoted as saying in an interview with the BOJ.
A department store operator in Osaka said it will take some time for sales to recover to levels seen before the pandemic because they remain sluggish even after store closures were ended in late May, according to the report.
The tourism sector is among the hardest hit by the outbreak.
“It will take a few years for the number of inbound tourists to return to pre-pandemic levels,” an accommodation operator in the Hokuriku region was quoted as saying.
Some manufacturers noted signs of improvement.
“While exports of auto parts to North America keep falling, those to China have been picking up,” a machinery maker in the Tokai region said in the report.
The BOJ decided at a June policy meeting to expand its corporate support measures to 110 trillion yen ($1 trillion) from 75 trillion yen to include new loan schemes for midsized and small companies.
The decision was meant to bolster the country’s ailing economy in line with the government’s 31.91 trillion yen second extra budget approved by parliament last month.
However, the Japanese economy has been hit hard by the virus outbreak, with the central bank’s quarterly Tankan survey showing last week that business sentiment among large manufacturers had plunged to minus 34 in June, its lowest level since June 2009, from minus 8 in March due to the economic fallout from the pandemic.
The index for big nonmanufacturers including the service sector dived to minus 17, its weakest figure since December 2009, from 8 in the March survey.
The Sakura report — named after its cherry blossom-colored cover — is the Japanese equivalent of the U.S. Federal Reserve’s Beige Book and is released every three months following a meeting of the BOJ’s regional branch managers.
The BOJ is scheduled to hold a two-day policy-setting meeting from Tuesday.