The Bank of Japan is considering whether to roll out more easing, according to Jiji, although it’s not entirely clear what “more” even means in this context.
The BOJ long ago crossed into policy Neverland, both figuratively and, to let Haruhiko Kuroda tell it, literally. (Kuroda famously likened himself to Peter Pan in 2015.)
The bank upped its ETF purchases in response to the coronavirus crisis last month and on Thursday said this month’s policy meeting will be shortened from two days to one.
Around 83% of analysts see the bank implementing new measures to encourage lending to businesses.
Many Japanese have been living under a state of emergency, and like other countries globally, Japan came into the public health crisis on shaky footing economically.
The economy contracted 7.1% in the fourth quarter of 2019 (revised lower from the preliminary print). That was the worst performance since Q2 2014, a period which, like Q4 2019, was marked by a tax hike. When you toss in a typhoon and the deleterious effects of the trade war, you end up with a precarious situation.
A recession is now assured. On Thursday, the flash PMI for the services sector was a predictable disaster, tumbling to 22.8 from 33.8 in March.
That’s obviously the lowest reading in series history, and it marks the third straight month of contraction.
“The drop was unprecedented, outpacing the substantial declines seen during the global financial crisis and after the devastating tsunami in 2011”, Jibun said, in the release.
The manufacturing gauge held up better, printing 43.7 in the flash read for April, down slightly from March, although the output index dropped to 37.8, the lowest reading in nine years.
This underscores the need for more stimulus, and Shinzo Abe has already unveiled a record fiscal package. Although it’s not clear what else the BoJ can do, it’s worth noting that we’re entering an era of fiscal-monetary “partnerships”, and the BoJ has been absorbing JGBs with the effect of helping make the unmanageable more manageable for years.
Meanwhile, South Korea’s economy contracted the most since the financial crisis in the first quarter, data out Thursday showed.
GDP shrank 1.4% QoQ, which was actually something of a relief. Economists were looking for a 1.5% contraction and, considering the circumstances, 1.4% isn’t all that bad. Remember, South Korea was one of the first ex-China COVID-19 hotspots.
South Korea is being held up as a model for the effectiveness of widespread testing and containment, and it appears as though life may be set to normalize domestically.
That said, first-20 days export data for April showed the country will continue to suffer from lackluster external demand, just as it did during the trade war. This demand shock is, quite obviously, much worse than that witnessed during the Sino-US tariff spat.
The government has earmarked nearly $200 billion in stimulus to help the economy along as the world does its best to flatten the virus curve and return to some semblance of “normal”. And yet, I would gently note that export-reliant economies and countries that have benefited from globalization may struggle in the post-COVID world – at least initially.