BOJ sees Delta variant delaying recovery more than expected

Bloomberg

Japan’s economic recovery will be delayed more than previously expected as the delta variant pushes up infections to record levels, according to a Bank of Japan (BOJ) board member.
“The current spread of infections is more than expected at the time of the July policy meeting,” Toyoaki Nakamura, one of nine members on the board, told reporters in Tokyo. “Downward pressure on the economy is going to continue for the time being.”
Prime Minister Yoshihide Suga looks set to expand Japan’s state of emergency to almost 80% of the economy as he tries to contain the latest wave of cases that has put extra strain on the medical system.
Nakamura said an expected spending uptick built on pent-up demand had failed to emerge in the summer break as surging infections kept consumers cautious. Still, he didn’t signal a need for additional easing steps by the bank as he still sees the mechanics for an economic
recovery intact unlike last year.
Meanwhile, Bank of Japan Governor Haruhiko Kuroda indicated geographical spread of the bank’s foreign currency-denominated reserves wouldn’t suddenly change following its decision to use them to buy overseas green bonds.
In his first public speech since the BOJ announced it would use the reserves to buy foreign green bonds, Kuroda reiterated that the purchases would simply be part of the bank’s asset management, not its monetary policy. He also indicated that any consideration of targeting green bonds as part of its main policy settings was a long way off.
The governor ruled out the likelihood of selling US dollar-denominated bonds to buy European green bonds. He also said the reserves wouldn’t be used to buy Japanese sovereign green bonds should any be issued.
With the comments, the Kuroda likely wanted to tamp down any speculation that the buying of foreign green bonds was the start of wider move to buy green assets.
The BOJ holds about $70 billion in foreign currency assets, accounting for about 1% of its balance sheet. The bank’s planned green bond purchases are widely expected to have little impact on markets. The BOJ doesn’t disclose the allocation of its foreign assets.
Japan’s central bank announced earlier this month that central banks in east Asia-Pacific agreed to support investment in green bonds to further deepen the local currency-denominated green bond market in the region.