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A man wearing a protective mask walks past

By Leika Kihara

While exports have already benefitted from solid global demand, consumption will rebound if vaccinated households splurge on “forced savings” accumulated during stay-at-home policies to prevent the spread of the COVID-19 virus, the BOJ members predicted in a policy meeting in April, its minutes showed on Wednesday.

The upbeat assessment on the outlook reinforces market expectations that the central bank in the world’s third-biggest economy will keep monetary settings unchanged for the time being, in the hope its ultra-loose policy and pandemic-relief programmes will sustain a moderate recovery.

“There’s a chance the stimulus measures taken by advanced nations could quicken the pace of recovery in domestic and overseas economies,” board members were quoted in the minutes as saying.

The members said there was uncertainty “over the pace and effect of coronavirus vaccinations, which could heighten downward pressure on economic activity”.

But a recent pick-up in vaccinations is giving rise to hope consumption may emerge from the doldrums.

One board member said Japanese households may tap their “forced savings” accumulated last year sooner than initially expected, when taking into account the boom in consumption seen in the United States.

In April, the BOJ estimated that such “forced savings,” or money households were forced to save when curbs in activity were adopted to stop the spread of the pandemic, may have amounted to 20 trillion yen ($181 billion) last year. That would be roughly 7% of Japan’s disposable income, it said.

“We could see huge pent-up demand in service consumption,” as households have increased savings and deposits by around 50 trillion yen in the past year, another member said.

At the April meeting, the BOJ kept monetary settings intact and projected that inflation will miss its 2% target well beyond Governor Haruhiko Kuroda’s current term ending in 2023.

Japan’s economy shrank an annualised 3.9% in the first quarter and many analysts expect any rebound to be modest in April-June as state of emergency curbs to combat the pandemic cool consumption.

($1 = 110.8000 yen)

(Reporting by Leika Kihara; Editing by Chang-Ran Kim, Kenneth Maxwell and Muralikumar Anantharaman)

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