Japan's policymakers brace for Q4 GDP slump and growing Covid-19 risks

Tokyo

JAPANESE policymakers on Friday braced for a sharp contraction in the October-December quarter growth and warned of the hit to output and consumption from the Covid-19 outbreak, signalling alarm over a darkening outlook for the world's third-largest economy.

Bank of Japan executive director Eiji Maeda said gross domestic product (GDP) may have suffered a "big contraction" in the final quarter of last year due to sluggish overseas demand and damage to consumption from last year's sales tax hike.

"Japan's economy is expected to continue expanding moderately as a trend," thanks to robust capital expenditure and government spending, Mr Maeda told parliament. "But we need to be vigilant against various risks such as the impact the Covid-19 outbreak could have on output and spending by inbound tourists," he said.

Economy Minister Yasutoshi Nishimura also told reporters that the virus outbreak, as well as unusually warm weather that hurts sales of winter clothing, were "fresh factors weighing on the economy".

Analysts polled by Reuters expect Japan's economy to have shrunk an annualised 3.7 per cent in the October-December quarter, which would be the fastest pace of decline since 2014. The GDP data is due on Monday.

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Japan is among countries worst affected by the epidemic outside China, with more than 250 confirmed cases including those on a cruise ship. Some analysts expect the Japanese economy to suffer another contraction in the current quarter as China's Covid-19 outbreak hurts exports, output and consumption through a sharp drop in overseas tourists.

A separate Reuters poll showed on Friday that the Covid-19 epidemic is expected to shave up to 0.2 percentage points off Japan's economic growth this year.

The government decided on Friday to spend 10.3 billion yen from budget reserves to respond to the Covid-19 outbreak.

Finance Minister Taro Aso said the government was ready to take additional steps depending on how big the impact from the outbreak could be.

BOJ's Mr Maeda said the central bank will support the economy by maintaining its massive stimulus programme but stopped short of signalling additional monetary support.

Mr Maeda's remarks suggest that the BOJ does not see the virus impact as big enough yet to alter its economic projections.

But some in the BOJ worry that supply chain disruptions could hurt Japanese firms if Chinese factory shutdowns continue for weeks, sources familiar with their thinking say. Honda Motor Co said on Friday that it now plans to restart operations at its vehicle plant in Wuhan - the epicentre of China's Covid-19 epidemic - on Feb 21, a week later than initially planned.

The BOJ next meets for a rate review on March 18-19. REUTERS