By Leika Kihara

TOKYO (Reuters) – Japan’s economy will likely recover to levels before the coronavirus pandemic as early as March next year, Bank of Japan Governor Haruhiko Kuroda said on Monday, offering an upbeat view on its recovery prospect despite headwinds from COVID-19.

Kuroda also said a combination of expansionary fiscal and monetary policies have successfully stabilised Japan’s economy, signalling that the BOJ has offered sufficient stimulus for now to cushion the economic blow from the health crisis.

“Both fiscal and monetary policies have been successful in preventing corporate failures and unemployment,” Kuroda told a virtual meeting of the World Economic Forum.

“We expect, probably by the end of fiscal 2021 or early fiscal 2022, that Japan’s economy would recover and come back to levels before the pandemic started,” he said.

In its latest quarterly projections released last week, the BOJ expects the world’s third-largest economy to expand 3.9% in the fiscal year beginning in April, followed by a 1.8% increase in fiscal 2022.

The key challenge for policymakers would be to prevent the pandemic from leaving a lasting scar on the economy, and to provide impetus to growth such as by promoting digitalisation and a “green” economy, Kuroda said.

“Greening the economy…was important before the pandemic. But now it’s more important. It would make our economy more sustainable. At the same time, it would provide some growth impetus,” he said.

After suffering its biggest postwar slump in April-June last year, Japan’s economy has been recovering moderately from the pandemic thanks to a rebound in exports and output.

But a resurgence in infections has forced the government to declare a new state of emergency in January, threatening to cool consumption and push the economy back into recession.

(Reporting by Leika Kihara; Editing by Chris Gallagher and Jacqueline Wong)