Japan's new government should focus on response to coronavirus, digitalisation - Reuters poll

Japan's new prime minister should focus on combating the COVID-19 pandemic, digitalising the economy and creating employment, a Reuters poll showed on Friday.

The poll of analysts forecast the world's third-largest economy to contract more than previously expected in the current fiscal year to March as the pandemic hits companies and households.

Chief Cabinet Secretary Yoshihide Suga, the frontrunner in the ruling party's Sept. 14 leadership race, said preventing the spread of the virus would be his top priority.

Suga, on course to succeed incumbent Prime Minister Shinzo Abe, also stressed that his main task as the nation's leader would be to revive the economy.

Asked which areas the government should focus on under the new prime minister, 37 economists in the Sept. 2-10 poll selected "response to the coronavirus pandemic" while 28 picked "digitalisation in society and among firms."

The coronavirus crisis has underscored technological shortcomings in Japan's government and companies as many of them remain in a paper-driven culture that experts say is hurting productivity.

Twenty-two economists chose "creating jobs and stimulating domestic demand" and 13 selected "foreign and security policy".

The poll allowed respondents to select up to three areas.

"Fiscal spending remains necessary," said Mari Iwashita, chief market economist at Daiwa Securities. "Given fiscal constraints, we need to shift to focused and efficient spending."

Out of the total economists surveyed in the poll, the median forecast of 30 analysts showed Japan's economy is expected to contract 6.0% this fiscal year, the biggest contraction since comparable data became available in 1994 and worse than the 5.6% fall projected last month.

A worst-case scenario showed the economy could shrink 8.1%.

Some analysts responded to the survey before data released on Tuesday showed the economy shrank 28.1% in the second quarter, more than initially estimated.

Core consumer prices, which exclude volatile fresh food but include energy costs, will likely decline 0.4% in the current fiscal year and grow 0.2% next year, the poll found.

Nearly two-thirds of the economists surveyed forecast the Bank of Japan's next course of action would be to expand its stimulus as the pandemic remains a drag on economy.

"The BOJ would need to safeguard the economy against both domestic and overseas risks," said Tetsuya Inoue, chief researcher at Nomura Research Institute.

(For other stories from the Reuters global long-term economic outlook polls package)

By Kaori Kaneko