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Japan braces for worst postwar economic slump, Covid pandemic tests policy response

Japan’s economy shrunk compared to the first quarter due to a decline in GDP in the first quarter, as the cornovirus crisis put a brake on global growth and jolted trade and consumers by increasing pressure on Tokyo.

Banks are doing their part to help lend at the fastest annual pace of record in May, a sign companies were lending to meet urgent money needs to avoid sluggish sales from the epidemic. .

Although US and European policymakers have shied away from crisis-response efforts to boost growth, Japan is struggling to do so as it continues to focus on preventing a second wave of infection.

In an interview with Reuters, Economy Minister Yasutoshi Nishimura said Japan should focus primarily on stopping staggering businesses, suggesting the central bank should avoid pushing interest rates deeper into negative territory.

“We are not at a stage right now where we want to encourage consumption and encourage people to travel. Efforts to encourage consumption should wait a little longer,” he said, when the bank Off Japan must take steps to boost demand. , Such as deepening negative interest rates.

The world’s third-largest economy grew 2.2% year-over-year in January-March, revised data on Monday showed contraction below 3.4%, as indicated in preliminary readings, as capital expenditure was better than expected. Analysts had contraction of 2.1%.

But some analysts were hopeful about the outlook for the year as capital spending data used to calculate revised figures lacked adequate responses – most struggling firms did not participate in the survey – and updated in July Will go.

Overall, the Revised Gross Domestic Product (GDP) estimates on Monday that Japan has slipped into recession – defined as two straight quarters of contraction – for the first time in 4-1 / 2 years, even That to stop the virus even before the lockdown steps. Was placed in April.

Tom Lermouth, an economist at Capital Economics, said, “The upward revision in GDP reflected in the revised estimate has brought comfort to the cold.

‘Highly challenging’ approach

Oxford Economics senior economist Stephen Angerich concluded: “With the bulk of the impact of the coronovirus epidemic being felt in Q2, the outlook for 2020 is extremely challenging.”

A series of recent figures, including data on exports, factory production, and jobs, suggested that Japan is experiencing its worst post-war recession in the current quarter, a period when Prime Minister Shinzo Abe called for a state of emergency. I had requested citizens to close homes and businesses.

Although the emergency was lifted at the end of May, the economy is expected to improve in the coming months, reducing the pervasive effects of the epidemic.

The boom in bank lending, also shown in BOJ data released on Monday, suggests companies are being forced to accumulate cash just to stay – and this is the worst yet.

The head of Japan’s ANA Holdings Inc. said the airline would cut unprofitable international routes to withstand the hit by the pandemic, according to the Asahi newspaper.

Tokyo policymakers are moving fast to stop the bleeding.

Japan’s parliament will begin presenting a second supplementary budget on Monday for part of a new $ 1.1 trillion stimulus package, which includes loan plans and an outline of how capital is involved in struggling firms.

The BoJ eased monetary policy for two straight months in April, focusing on steps to reduce corporate funding strains.

The central bank will examine its rate review next week to see if additional steps are needed. But sources said it is to maintain its trajectory of moderate economic recovery later this year.

One surprise in the markets is that Japanese policy makers may have some breathing space before considering the Boulder steps.

Japanese stocks climbed to a 3-1 / 2-month high on Monday following an unexpected rise in US employment, giving investors confidence of a rapid financial recovery.

“If you look at the Japanese stock market, it definitely suggests that additional monetary easing is not necessary,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“The BOJ has already done much to respond to the immediate crisis.”

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