On Saturday the Italian government decided to put the northern region of Lombardy and 14 provinces into quarantine in order to contain the spread of the coronavirus epidemic. At the time of writing, there are around 7375 reported coronavirus infections in Italy, and the death toll is at 366 victims.
Italy's decision to lock down around a third of its population will only worsen the effects of the outbreak in the already weak Italian economy. The services sector is already being affected, as hotels, restaurants, and other establishments associated with the Italian tourism industry are experiencing economic losses.
Since Italy is an important member of the Eurozone, its situation will influence the upcoming policy decisions that the European Union leaders will implement to face the effects of the spread in the European economy. The European central bank is meeting on Thursday, and analysts expect it to intervene.
However, this time the central bank has very limited options in terms of possible monetary measures. The ECB's cash rates are already on the negative territory, at -0.5 percent, which limits the margin of maneuver in a significant way. Nevertheless, some analysts think that the bank may announce a 0.1 percentage point cash rate cut, bringing it down to -0.6 percent.
Other instruments may be employed, like TLTROs (but this time targeted at small and medium-sized enterprises) with looser terms and conditions or mass bond purchases (better known as Quantitative Easing). Nevertheless, the ECB leadership may ask (again) for financial assistance from the different Eurozone members, especially those who have more room of maneuver, like Germany.
By 6:54 GMT the Euro went up by 1.03 percent against the US dollar, hitting the 1.1402 level. On the other hand, it went down against the Swiss Franc by 0.33 percent, falling to the 1.0548 level, and lost 1.60 percent against the Japanese Yen, at 116.99.
Bank of Japan to Take Appropriate Actions Against Coronavirus Effects
Meanwhile, the Bank of Japan Governor Haruhiko Kuroda said on Monday that uncertainty regarding the Japanese economy is increasing, and investor sentiment is deteriorating, which makes the market moves unstable.
“Uncertainty over Japan’s economic outlook is heightening. Investor sentiment is deteriorating somewhat, with market moves unstable,” he told the Japanese parliament.
Kuroda pledged to take "appropriate" action taking into account the effects of the coronavirus outbreak on the Japanese economy.
By 7:22 GMT the US dollar went down by 3.11 percent against the Japanese Yen, at 102.03.