Japanese economy can handle change of plan for Olympics: IMF

Postponing or canceling matches scheduled for July would have a “ limited impact ” on growth in Japan, an IMF official said.

Canceling or postponing the Tokyo Olympics is unlikely to do much harm to the Japanese economy, but could force the government to offer tailor-made support to hard-hit small businesses, a senior official at the International Monetary Fund said (IMF ).

As the government plans to proceed as planned, a further rise in coronavirus infections and slow vaccine distribution programs have added to concerns over the fate of the Olympics, which are set to begin in July after being postponed last year. .

“A change in plans for the Olympics would have a limited impact on the overall growth prospects in the short term, given that Japan is a large and diverse economy,” said Odd Per Brekk, deputy director of the Asia and Pacific department, on Tuesday. from the IMF. .

Most of the infrastructure needed for the Games is already in place and the blow to the growth of an evaporation from inbound tourism would be small, he added.

No Games were held at the Tokyo Olympic Stadium in 2020 due to the pandemic [File: Kimimasa Mayama/EPA]

“Having said that … we have to keep in mind that canceling the Olympics would have a disproportionate impact on the service sector in Tokyo, especially among small and medium-sized businesses,” he told the agency. Reuters press release in a written interview.

The government may need to offer support to these companies, as an analysis based on a survey suggests that canceling the Olympics could reduce their sales growth by more than 5%, he added.

Broad assessment is needed

The Japanese economy has emerged from last year’s crisis caused by the pandemic, although analysts expect any recovery to be modest as a new spike in infections weighs on consumption.

The Osaka region in western Japan reported record infections on Tuesday as a mutant strain of the virus fueled a rebound in cases.

The IMF raised Japan’s economic forecast to 3.3% for this year, with robust exports and the effect of huge fiscal stimulus underpinning growth.

“As in all countries, growth prospects in Japan are subject to significant downside risks stemming from uncertainty over the course of the virus and the deployment of the vaccine, both nationally and globally,” said Brekk.

The pandemic has further delayed the Bank of Japan’s (BOJ) achievement of its 2% inflation target, forcing it to conduct a review in March of its tools to make them more sustainable.

Brekk hailed the revised BOJ policy as including “steps in the right direction” to tackle the cost of prolonged easing.

But inflation will remain below 2% over the medium term, due to the pandemic hit and Japan’s weak growth potential which lessens the impact of monetary easing, Brekk said.

“Going forward, a broader assessment may be needed of how overall economic policies, including monetary, fiscal, structural and deregulation policies, could be implemented to achieve sustainable growth and achieve the target. inflation rate of 2%, ”he said.

As part of its March review, the BOJ created a system to compensate banks for the negative effects of interest rates.

The main objective was to convince the markets that with such tools to deal with side effects, the BOJ can push rates deeper into negative territory to combat economic shocks.

Brekk, however, said the likelihood that the BOJ would deepen negative rates was low.

“While the system signals that the BOJ would be ready and able to deepen negative rates, and as such represents useful forward-looking guidance, we do not see a rate cut in the near future, unless deflationary pressures do not intensify. “

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