As part of the Bank of Japan’s quarterly Sakura report this week, the bank downgraded its view of all nine of the country’s regional economies for a second consecutive quarter. This marks the first instance of such a decision in over 11 years and highlights the severity of the negative impact the COVID-19 crisis has had on the Japanese economy. The last time all regional economies were downgraded for two consecutive quarters was in October 2008 and January 2009 as the fallout from the global financial crisis wreaked havoc on the Japanese economy.
In the report, the BOJ noted that all regional economies had deteriorated since April, with some noted as being in a severe state. The report also noted that the BOJ will act as necessary to help support the economy, easing further if necessary.
During a teleconference between the BOJ and regional bank managers this week, BOJ chief Kuroda said the domestic economy “has been in an extremely severe situation” as. Result of the pandemic. However, Kuroda also offered reassurance, saying: “will pick up with an expected rise in output, an accommodative monetary environment and the government’s economic stimulus packages once the virus is subdued.”
BOJ Monitoring Flood Impact
Along with the downside risks from the pandemic, the quarterly report also noted that the BOJ is monitoring the economic impact of the recent floods seen in south-west and central Japan, with Kuroda pledging that the BOJ will work to maintain stability in the financial systems.
Referring to the negative impact of the COVID-19 crisis, the report noted that weaker consumption and a deterioration in the employment and income landscape had contributed to its decision to lower its view of all nine regional economies.
The BOJ recently expanded its corporate financing operation which was extended in June to 100 trillion yen from the prior 75 trillion level. The programme was also adjusted to now include funding for small and midsized companies. This was in addition to the 31.91 trillion yen in fiscal support announced by the Japanese government last week to help support the economy as it comes out of lockdown.
Business Sentiment Remains Weak
Despite the new measures, survey data suggests that sentiment in the business community remains weak. The BOJ’s quarterly Tankan survey showed that business sentiment in large manufacturers dropped to -34 in June, marking the indicator’s lowest level since 2009.
Traders are now awaiting the BOJ’s monthly monetary policy meeting this week, with expectations of further easing having grown in response to the downgrades included in the report.
NIKKEI ( Bullish above 22260)
From a technical viewpoint. The rally in the NIKKEI has stalled over recent weeks with price remaining stagnant along the yearly pivot at 22260. While price holds above here, the near- term bias remains bullish with the 23273.6 level the next upside target to note. A break below here, however, will turn attention to the monthly S1 at 21402.2.
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