By Leika Kihara
TOKYO (Reuters) – Japanese policymakers on Friday braced for a sharp contraction in October-December growth and warned of the hit to output and consumption from the coronavirus outbreak, signaling alarm over a darkening outlook for the world’s third-largest economy.
Bank of Japan Executive Director Eiji Maeda said gross domestic product (GDP) may have suffered a “big contraction” in the final quarter of last year due to sluggish overseas demand and damage to consumption from last year’s sales tax hike.
“Japan’s economy is expected to continue expanding moderately as a trend,” thanks to robust capital expenditure and government spending, Maeda told parliament.
“But we need to be vigilant against various risks such as the impact the coronavirus outbreak could have on output and spending by inbound tourists,” he said.
Economy Minister Yasutoshi Nishimura also told reporters the virus outbreak, as well as unusually warm weather that hurts sales of winter clothing, were “fresh factors weighing on the economy.”
Analysts polled by Reuters expect Japan’s economy to have shrunk an annualized 3.7% in the October-December quarter, which would be the fastest pace of decline since 2014. The GDP data is due 8:50 a.m. Monday (2350GMT Sunday).
Japan is among countries worst affected by the epidemic outside China, with 251 confirmed cases including those on a cruise ship.
Some analysts expect Japan’s economy to suffer another contraction in the current quarter as China’s virus outbreak hurts exports, output and consumption through a sharp drop in overseas tourists.
A separate Reuters poll showed on Friday the coronavirus epidemic is expected to shave up to 0.2 percentage points off Japan’s economic growth this year.
The government decided on Friday to spend 10.3 billion yen from budget reserves to respond to the coronavirus.
Finance Minister Taro Aso said the government was ready to take additional steps depending on how big the impact from the outbreak could be.
BOJ’s Maeda said the central bank will support the economy by maintaining its massive stimulus program but stopped short of signaling additional monetary support.
Maeda’s remarks suggest the BOJ does not see the virus impact as big enough yet to alter its economic projections.
But some in the BOJ worry that supply chain disruptions could hurt Japanese firms if Chinese factory shutdowns continue for weeks, sources familiar with their thinking say.
Honda Motor Co <7267.T> said on Friday it now plans to restart operations at its vehicle plant in Wuhan – the epicenter of China’s coronavirus epidemic – on Feb. 21, a week later than initially planned.
The BOJ next meets for a rate review on March 18-19.
(Reporting by Leika Kihara; Aditional reporting by Kaori Kaneko, Tetsushi Kajimoto and Yoshifumi Takemoto; Editing by Chris Gallagher and Sam Holmes)