The Bank of Japan on Thursday revised its growth outlook upwards for the next two years and maintained its ultra-loose monetary policy as it warned that the pandemic makes clear forecasts less likely.
However, for the current fiscal year to March the central bank expects the economy to shrink 5.6%, against its October estimate of a 5.5% contraction.
The announcement comes with parts of the country including Tokyo and Osaka under a state of emergency that requests shops and restaurants to close early until at least the start of February.
While Japan’s Covid-19 outbreak remains comparatively small, with around 4,700 deaths overall, there has been a sharp spike in cases this winter.
But the BoJ saw brighter times on the horizon in its quarterly report, published after a two-day policy meeting.
For the 12 months to March 2022 it expects growth of 3.9%, and 1.8 %the following year. That compares with previous estimates of 3.6% and 1.6%, respectively.
“Japan’s economy is likely to follow an improving trend with the impact of the coronavirus waning gradually, but the pace is expected to be only moderate while vigilance against Covid-19 continues,” the bank said.
The higher projected growth rates reflect “the effects of the government’s economic measures in particular”, it said, referring to huge stimulus packages approved last year.
The BoJ warned its latest forecasts were “extremely unclear” and “could change depending on the consequences of Covid-19 and the magnitude of their impact on domestic and overseas economies.”
Prices are seen falling 0.5 percent in the current year to March, but will likely rise 0.5% and then 0.7% over the next two.
The negative interest rate of 0.1 percent on bank deposits was left unchanged, as well as a policy of unlimited purchases of government bonds.
The central bank will closely monitor the impact of the virus and “will not hesitate to take additional easing measures if necessary,” it added.