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The Bank of Japan (BOJ) issued its most pessimistic forecast for regional economies in more than a year on Thursday, citing supply limitations that have interrupted industrial output of cars and other products, clouding the outlook for the export-reliant economy.
The central bank slashed its economic evaluation for five of the country’s nine provinces in a quarterly report, the most reduction since July last year, indicating concern about output interruptions and the impact of the coronavirus outbreak on consumption.
The cautious outlook may cause the BOJ to lower its growth forecast for Asia’s second-largest economy this fiscal year when it releases new quarterly projections on Oct. 27-28.
The BOJ decreased its output forecast for four regions, including the Tokai central Japan area, which is home to automaker Toyota Motor (NYSE:TM) Corp., as a symptom of the growing impact of the worldwide chip and parts crisis.
“Southeast Asian factories are resuming operations but not at full capacity, so it will take time to see (supply constraints) ease,” Shinichiro Hayashi, head of the BOJ’s branch overseeing the Tokai region, told a briefing.
While demand for IT and machinery remains strong, such supply limits cast doubt on the outlook for exports, which have been important drivers of Japan’s shaky recovery. BOJ Governor Haruhiko Kuroda maintained his bullish outlook on the economy, predicting that it will rebound as the effects of the pandemic diminish.
Analysts also anticipate a rebound in consumption as a result of the relaxation of state-of-emergency restrictions in October, a substantial drop in new infections, and success in immunizations. Recent increases in energy prices put pressure on manufacturers, but they will help consumer inflation hasten toward the BOJ’s target of 2%.
“Core consumer inflation is hovering around 0% but we expect it to turn slightly positive reflecting rising energy prices,” Kuroda said in a speech to the branch managers, indicating that global inflationary pressure is spreading even to a country which has long struggled to shake off deflation.
“As the economy continues to improve and the impact of mobile phone fee charges dissipate, consumer inflation will gradually accelerate,” he said. In August, Japan’s core consumer prices reversed a 12-month fall as energy costs countered the benefit of mobile phone fee cuts as well as lacklustre consumption blamed on the coronavirus outbreak.
Story By: Norvisi Mawunyegah