Bank of Japan board member Makoto Sakurai said on Wednesday the central bank must take “swift and appropriate” action if the coronavirus shock delays the country’s economic recovery.
If the pandemic takes longer than expected to contain, that could push more companies under, saddle commercial banks with bad loans and threaten Japan’s financial system, he said.
“At present, financial institutions have sufficient capital so there is no big concern over Japan’s banking system. But we need to be prepared to take swift action, with a close eye both on the economy and the banking system,” Sakurai said in a speech to business leaders in Fukui prefecture.
The remarks came ahead of the BOJ’s rate review next week, when the central bank is likely to cut its growth and price forecasts, but leave monetary settings unchanged.
Sakurai said Japan’s economy was likely to gradually recover after having hit bottom in the second quarter, but he warned it remained in a severe state as COVID-19 continues to hurt corporate profits and consumption.
He said the BOJ must ensure inflation expectations do not fall too much, as firms and households will put off spending if they expect prices to decline for a prolonged period.
“Even if actual price rises are slow, it’s important to maintain inflation expectations in positive territory to prompt private entities to keep spending,” Sakurai said.