The Bank of Japan (BOJ) Governor Haruhiko Kuroda said second-round effects of the coronavirus pandemic could hurt the Japanese economy “considerably”, signalling the bank’s readiness to ramp up stimulus measures again to cushion any blow from the crisis.

In an online seminar on Friday Kuroda said the central bank saw no immediate need to cut interest rates, and instead will focus on easing corporate funding strains and stabilising markets with its lending facility and asset purchases.

“Japan’s economy has been in an extremely severe situation.  In the second quarter, we’ll likely see considerable negative growth,” Kuroda said.

“At this moment, we didn’t see the need to further lower the entire yield curve. Of course, if necessary we will do that. But now, we don’t think it’s necessary,” he said.

The BOJ eased policy in March and April, mainly by boosting asset buying and creating lending schemes to channel funds to companies hit by the pandemic. It has kept its interest-rate targets unchanged.

Kuroda said he was “cautiously optimistic” that Japan’s economy will gradually recover from the second half of this year, allowing the BOJ to scale back its crisis-response steps.

“Once the impact of COVID-19 on the economy has subsided, the economy starts to recover and comes back to a normal growth path, then of course our extraordinary measures may be gradually curtailed,” Kuroda said.

“But then, we have to achieve our 2% inflation target,” he said. “That’s unlikely to be met in the short run. The BOJ’s expanded balance sheet would not be normalised until 2% inflation is achieved.”

Under yield curve control, the BOJ guides short-term rates at -0.1% and long-term yields around zero. It also introduced several crisis-response tools, including a lending facility to ease funding strains that expires in March next year.

Meanwhile, Japanese shares bounced back on Friday, tracking overnight Wall Street gains, with banks leading the rally in both markets, after US regulators’ decision to ease some rules allayed fears over a spike in fresh COVID-19 cases. The benchmark Nikkei average rose 1.1% to 22,512.08, rebounding from a 1-1/2-week closing low hit in the previous sessiom. For the week, the index eked out a marginal gain of 0.1%.

Wall Street’s major indexes closed higher on Thursday, with bank stocks soaring after US banking regulators unveiled new rules that will make life easier for large banks with complex trading and investment portfolios. It has helped to offset investor jitters over alarming increases in new coronavirus cases.

Reuters