Bank of Japan revises up growth outlook for next two years

The Band of Japan warned its latest forecasts were extremely unclear and could change depending on the consequences of Covid-19 and the magnitude of their impact on domestic and overseas economies. - Reuters

TOKYO (AFP): The Bank of Japan on Thursday (Jan 21) revised its growth outlook upwards for the next two years and maintained its ultra-loose monetary policy as it warned that the pandemic makes clear forecasts less likely.

However, for the current fiscal year to March the central bank expects the economy to shrink 5.6 percent, against its October estimate of a 5.5 per cent contraction.

The announcement comes with parts of the country including Tokyo and Osaka under a state of emergency that requests shops and restaurants close early until at least the start of February.

While Japan's Covid-19 outbreak remains comparatively small, with around 4,700 deaths overall, there has been a sharp spike in cases this winter.

But the BoJ saw brighter times on the horizon in its quarterly report, published after a two-day policy meeting.

For the 12 months to March 2022 it expects growth of 3.9 per cent, and 1.8 percent the following year. That compares with previous estimates of 3.6 per cent and 1.6 per cent, respectively.

"Japan's economy is likely to follow an improving trend with the impact of the coronavirus waning gradually, but the pace is expected to be only moderate while vigilance against Covid-19 continues," the bank said.

The higher projected growth rates reflect "the effects of the government's economic measures in particular", it said, referring to huge stimulus packages approved last year.

The BoJ warned its latest forecasts were "extremely unclear" and "could change depending on the consequences of Covid-19 and the magnitude of their impact on domestic and overseas economies".

Prices are seen falling 0.5 per cent in the current year to March, but will likely rise 0.5 per cent and then 0.7 per cent over the next two.

The negative interest rate of 0.1 per cent on bank deposits was left unchanged, as well as a policy of unlimited purchases of government bonds.

The central bank will closely monitor the impact of the virus and "will not hesitate to take additional easing measures if necessary", it added.

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