© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020. REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) – Bank of Japan board member Toyoaki Nakamura warned of risks to the economic outlook from a recent resurgence in COVID-19 infections, but signalled hope that consumption will get a boost once households feel safe to start spending.

Nakamura said the world’s third-largest economy is expected to recover as the pandemic’s impact fades, pointing to the boost to growth from robust global demand and a recovery in capital expenditure.

The outlook was “highly uncertain” with risks skewed to the downside, the former corporate executive said, as state of emergency curbs to combat the pandemic hurt retailers.

But Nakamura signalled hope that once vaccinations proceed, consumption may get a boost from pent-up demand with Japanese households having loaded up a record 1,056 trillion yen ($9.61 trillion) in cash and deposits.

“The resurgence in infections may have somewhat delayed the timing for when pent-up demand materialises,” he said in a speech on Wednesday, adding there was a chance economic activity may strengthen more than expected once the pandemic’s impact eases.

Japan is looking to expand a state of emergency to eight more prefectures, taking the total to 21 in all, to stem a rapid rise in coronavirus infections, the minister in charge of COVID-19 countermeasures said on Wednesday.

Japan’s economy rebounded more than expected in the second quarter after slumping in the first three months of this year, a sign consumption and capital expenditure were recovering from the coronavirus pandemic’s initial hit.

But many analysts expect growth to remain modest in the current quarter as curbs reimposed to combat a spike in infections weigh on household spending.

($1 = 109.8300 yen)

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