Japan Sees Coronavirus as More Dangerous for the Economy Than the 2008 Financial Crisis

Posted Thursday, March 5, 2020 by
Skerdian Meta • 1 min read
The coronavirus outbreak has scared the hell out of central bankers all across the globe. The RBA cut interest rates first by 25 bps and, from what we heard yesterday from RBA’s Debelle, another rate cut is coming and they are thinking about starting a QE programme.

The FED delivered a sudden rate cut of 50 bps during a surprise meeting and markets expect another cut during the meeting later this month. The Bank of Canada also cut interest rates by 50 bps yesterday, while other major cventral banks are getting ready to do the same. A while ago, the Japan ruling party policy chief said that the virus response requires rate cuts larger than during ‘Lehman shock’.

  • The virus hit to the economy will be worse than during the ‘Lehman shock’
  • Requires interest rate cuts larger than what was seen at the time

I think he is right, if the virus keeps spreading. Unlike in 2008-2009 when the global economy fell into recession, we’re seeing parts of different countries shut down. Yes sure, central banks are pumping more money into the economy and governments might increase fiscal spending, but that won’t persuade people to go out and work or spend. So, if the virus progresses, I think that money won’t save the day.

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