COVID Economic Fallout in Japan to Last Longer than Expected

According to Bank of Japan Board Member Goushi Kataoka, the negative effects of the pandemic on the economy will last longer than expected, casting into doubt the bank's provisions for the economy.

"Risks to consumption are heightening," he commented. "There's a good chance the impact of the pandemic may last longer than expected.”

He also highlighted that the bank is ready to increase stimulus if necessary, which coincides with analysts' expectations regarding Japan's readiness to stop stimulus programs compared to other countries. He also called on the bank to ramp up bond purchasing to drive down borrowing costs for companies, considering that the bank's 2% inflation target is not expected to be reached in the near future.

In its last meeting, the bank decided to leave interest rates unchanged at -0.10% and has not shown signs of willingness to stop its bond purchasing program. This position contrasts with that of other central banks from the developed world, which are planning to stop their stimulus programs due to fears of high inflation.

The country's GDP rose by 7.5% in yearly terms during the second quarter of the current year and advanced by 0.3% in quarterly terms. Many attribute this relatively low quarterly growth to the advance of the COVID-19 pandemic, though domestic spending still managed to advance enough to cause positive economic growth.

Since the beginning of the pandemic, 1,507,223 COVID-19 cases have been reported in Japan, including 16,123 related deaths. The Delta variant has been spreading quickly, which pushed the government to extend the state of emergency in several prefectures.

To stop the spread of the virus, the government has distributed 131 million doses among the local population, with 58.5 million individuals now fully vaccinated, accounting for 46.3% of the total population. Recently, the government had to stop distributing Moderna vaccines because they were believed to be contaminated.

Since the beginning of the week, the Japanese yen has dropped by 0.13% against the US dollar, losing ground for the third consecutive week and closing yesterday's session at the 0.908300 level. By 11:12 GMT, the Japanese yen gained 0.03% against the US dollar, hitting the 0.909250 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.