BOJ member says to monitor virus situation amid concern over Omicron

© Kyodo News

The Bank of Japan needs to pay close attention to the COVID-19 situation amid heightened concern about the spread of the Omicron variant of the novel coronavirus, one of its Policy Board members said Wednesday.

Seiji Adachi said in a speech in Oita Prefecture, southwestern Japan, that the central bank is ready to take additional easing steps, if necessary, to support struggling businesses, depending on the infection situation. The BOJ's support program for corporate funding is due to end in March.

Japan has seen a sharp downtrend in newly confirmed coronavirus cases, with a COVID-19 state of emergency that put a damper on the economy fully lifted on Oct. 1. But the country confirmed its first case of the Omicron variant on Tuesday.

"The situation warrants careful attention, as concern over the spread of a new variant is increasing at the moment," Adachi told a meeting of business leaders in Oita.

Despite some positive signs emerging, it would be "overly optimistic" to expect that services consumption will return to pre-pandemic levels soon, Adachi said, noting Japan has yet to see a sharp rebound in demand that had been suppressed due to anti-virus measures.

Parts shortages that have hit manufacturers hard, particularly automakers, due to factory shutdowns in Southeast Asia are expected to be only "temporary," though the outlook will also depend on the COVID-19 situation, according to the board member.

His remarks came after BOJ Governor Haruhiko Kuroda said Monday that the economy is expected to be in a recovery and growing phase "within a couple of months."

The BOJ is expected to maintain its monetary easing for an extended period, with its 2 percent inflation target still unattainable.

Still, Adachi said he has seen a change in companies' price-setting behavior and their outlooks for profits and capital spending, adding that inflation is expected to pick up.

Japan's core consumer price index in October rose 0.1 percent from a year earlier, which was rather modest compared with the United States and some European nations where inflation is accelerating.

The yen's recent weakness is also inflating import costs for Japan, which relies heavily on energy supplies from overseas.

Adachi dismissed the view that the weaker yen is "unhealthy" because it will lead to stagflation, a situation in which inflation picks up while economic conditions worsen.

"I see the yen's recent depreciation as having some positive aspects for Japan," Adachi said.

"It is supporting business fixed investment by contributing to the increased profits of Japanese firms' overseas subsidiaries and Japanese exporters' bottom lines. It is also encouraging overseas firms to consider establishing a corporate presence in Japan, such as by building manufacturing facilities," he said.