BOJ’s Kuroda warns of pandemic impact on global growth, Japan’s banks

The coronavirus pandemic is inflicting huge damage to the global economy and may weaken the country’s banking sector, Bank of Japan Governor Haruhiko Kuroda warned on Tuesday, a day after the central bank expanded stimulus to cushion the economic blow from the crisis.

Kuroda said Japan’s banking sector remains stable as a whole as financial institutions have sufficient capital buffers to weather the pain from the pandemic, which is prodding borrowers to hoard cash as they suffer from slumping sales.

But he said the BOJ will work closely with the Financial Services Agency, which is Japan’s banking regulator, to guard against the risk of a financial crisis.

“The global economy is worsening sharply as the virus spreads across the world,” Kuroda told parliament.

“If it takes longer than expected to contain the virus at home and abroad, that could hurt the economy and push up credit costs for financial institutions,” he said.

The BOJ expanded stimulus on Monday by pledging to boost purchases of corporate debt and government bonds, in a bid to ease funding strains for cash-strapped companies hit by the fallout from the pandemic.

The step, which follows monetary easing only a month ago, puts the BOJ in line with other major central banks that have unleashed unprecedented amounts of monetary support as the health crisis stokes fears of a deep global recession.

Before the pandemic, companies were borrowing money for capital expenditure or for merger and acquisitions. Now, they are loading up on cash to keep operations running amid slumping sales, the BOJ said in a quarterly report released on Tuesday.

The balance of commercial paper and corporate bonds issued have increased more than 10% from year-before levels as firms rushed to raise funds, the report said.

Japan’s exports were taking a hit particularly from slumping auto shipments to the United States and Europe, the report said.

The pandemic is also hurting corporate profits as travel bans and government requests for households to stay home hit retailers, it said.

“Consumption is falling sharply mainly for restaurants, hotels and other services as the impact of the pandemic widens,” the report said.

The BOJ on Tuesday released the full version of its quarterly outlook report, of which the summary was published on Monday.