TOKYO (Kyodo) -- The Bank of Japan said Wednesday it expects the nation's economy to shrink 4.7 percent and the consumer price index to fall 0.5 percent in fiscal 2020 through March 2021 due to the coronavirus pandemic.
The central bank issued the forecasts after policymakers voted at the end of a two-day meeting to maintain its ultraeasy monetary policy to bolster Japan's virus-hit economy.
"Japan's economy has been in an extremely severe situation," BOJ Governor Haruhiko Kuroda said at a press conference after the policy meeting, reiterating his assessment following the central bank's meeting in June.
The economy, however, is projected to grow 3.3 percent in fiscal 2021, with expectations that economic activity will gradually return to the pre-pandemic level, according to the BOJ's latest quarterly economic and inflation outlook report.
"The country's economy will slowly but firmly recover in fiscal 2021 and later," Kuroda told reporters.
In the last report released in April, the central bank projected the economy would contract between 3 percent and 5 percent, with the inflation rate falling into negative territory between minus 0.3 percent and minus 0.7 percent.
In the policy meeting, the BOJ left short-term interest rates at minus 0.1 percent, while guiding long-term rates to around zero percent.
The central bank also decided to maintain its corporate support measures totaling 110 trillion yen ($1 trillion) including interest-free loan programs for companies, and corporate bond and commercial paper purchases introduced at its June meeting.
Kuroda said such steps had supported the Japanese economy amid the pandemic with the government's two extra budgets financing massive economic stimulus packages.
"To some extent, the BOJ has contributed to less bankruptcies and job cuts compared to other nations and situations in the global financial crisis," he said.
However, the economy has been facing an uphill battle as the BOJ's Tankan survey in June, released earlier this month, showed business sentiment among large manufacturers had plummeted to its lowest level since June 2009 in the aftermath of the global financial crisis.
The nonmanufacturing sector has also struggled with tourism seeing a plunge in the number of travelers, especially those from overseas, while sales at retailers remain sluggish as people refrain from going out to avoid congested places such as department stores amid the pandemic.
"Production and spending on goods seem to have bottomed out in Japan, but service industries such as tourism are not likely to fully recover without the containment of the virus," Kuroda said.
Looking ahead, the outlook report said, "Japan's economy is likely to improve gradually from the second half of this year with economic activity resuming, but the pace is expected to be only moderate."
"The outlook...is extremely unclear, since it could change depending on the consequences of COVID-19 and the magnitude of their impact on domestic and overseas economies," according to the latest outlook report.
In addition, the number of confirmed COVID-19 cases has been increasing in Tokyo and several other prefectures, raising concern about a possible second wave of infections.
"The bank will closely monitor the impact of the novel coronavirus and will not hesitate to take additional measures if necessary," the central bank said, signaling its willingness to further ease its credit grip.
Kuroda also said the central bank will monitor developments related to Hong Kong, a key global financial market, amid intensifying political tension between the United States and China.
The BOJ voted 8 to 1 to maintain its current monetary policy, with the only dissenter, Goshi Kataoka, demanding further rate cuts. Kuroda told reporters the BOJ still considers additional rate cuts an option to strengthen its yield-curve control operations.
The central bank left its annual purchases of exchange-traded funds at up to 12 trillion yen.