Japan's economy faces extreme uncertainty as coronavirus spreads: central bank head

TOKYO (Reuters) - Uncertainty over Japan’s economic outlook is “extremely high” as the coronavirus pandemic hits output and consumption, central bank Governor Haruhiko Kuroda said, stressing his readiness to take additional monetary steps to prevent a deep recession.

Bank of Japan Governor Haruhiko Kuroda, wearing a protective face mask following an outbreak of the coronavirus disease (COVID-19), attends a quarterly meeting of the Bank of Japan's regional branch managers in Tokyo, Japan, in this photo distributed by Kyodo April 9, 2020. Mandatory credit Kyodo/via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. MANDATORY CREDIT. JAPAN OUT.

While aggressive central bank actions across the globe have eased financial market tensions somewhat, corporate funding strains were worsening, Kuroda told a quarterly meeting of the Bank of Japan’s regional branch managers on Thursday.

“The spread of the coronavirus is having a severe impact on Japan’s economy through declines in exports, output, demand from overseas tourists and private consumption,” he said.

Japan recorded 503 new coronavirus infections on Wednesday - its biggest daily increase since the start of the pandemic - as a state of emergency took effect giving governors stronger legal authority to urge people to stay home and businesses to close.

In contrast to stringent lockdowns in some countries, mandating fines and arrests for non-compliance, enforcement will rely more on peer pressure and a deep-rooted Japanese tradition of respect for authority.

The balancing act underscores the difficulty authorities have in trying to contain the outbreak without imposing a mandatory lockdown that could deal a major blow to an economy already struggling to cope with the virus outbreak.

Hideaki Omura, the governor of the central Japan prefecture of Aichi, said he would declare a state of emergency for his prefecture on Friday.

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Omura said Aichi, which includes the city of Nagoya and hosts Toyota Motor Corp, was talking with the central government about being included in the national state of emergency as well, but felt he could not wait any longer to restrict movement.

“Looking at things the past week and watching the situation - the rise in patients, the number without any traceable cause - we judged that it was a very dangerous situation and wanted to make preparations,” he told a news conference.

Even with less stringent restrictions compared with other countries, analysts polled by Reuters expect Japan to slip into a deep recession this year as the virus outbreak wreaks havoc on business and daily life.

Shares of Oriental Land Co 4661.T fell on Thursday after the operator of Tokyo Disneyland said it would keep the amusement park shut until mid-May.

Entertainment facility operator Uchiyama Holdings 6059.T said it was closing 43 karaoke shops and 11 restaurants until May 6.

“For the time being, we won’t hesitate to take additional monetary easing steps if needed, with a close eye on developments regarding the coronavirus outbreak,” Kuroda said.

Kuroda’s remarks highlight the strong concern policymakers have over the outlook for Japan’s economy and how companies continue to struggle to generate cash, despite government and central bank promises to flood the economy with funds.

At its policy meeting later this month, the BOJ is likely to make a rare projection that the world’s third-largest economy will shrink this year, sources have told Reuters.

The BOJ eased monetary policy in March by pledging to boost purchases of assets ranging from government bonds, commercial paper, corporate bonds and trust funds investing in stocks.

The government also rolled out a nearly $1 trillion stimulus package to soften the economic blow.

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Reporting by Leika Kihara; Additional reporting by Yoshifumi Takemoto, Elaine Lies and Kaori Kaneko; Editing by Chris Gallagher and Stephen Coates