Daily Management Review

Gloomy Economic Forecast Of Regional Japan Offered By BOJ


Gloomy Economic Forecast Of Regional Japan Offered By BOJ
Constraints in the supply chain disrupting the production of cars and other products forced its gloomiest forecast for the economics of the region in over a year to be announced by the Bank of Japan (BOJ) on Thursday.
The gloomy view also cast a shadow over the rebounding of the export-reliant economy of Japan as well.
The economic assessment for five of the country's nine regions was curbed by the Japanese central bank in its quarterly report which was the largest slashing of the forecast by the BOJ since July of last year. This reflected the impact of supply chain disruptions on production as well as that of the Covid-19 pandemic on consumption.
The guarded outlook may prompt the BOJ to further lower its growth forecast for Asia's second-largest economy for this fiscal year when it releases new quarterly projections on Oct. 27-28.
Its output forecast for four regions, including that of the Tokai region of central Japan, which is home to the world’s largest automaker Toyota Motor Corp, was reduced by the BOJ which signaled the increasing effect of the global chip and parts shortage.
"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.
The supply chain constrictions have clouded Japan’s outlook for exports, which has crucially driven the shaky recovery of the Japanese economy, even though there was continued strong demand for IT and machinery.
Estimating that the economy will stage a faster recovery with the fading of the impact of the pandemic, his bullish outlook on the Japanese economy was maintained by BOJ Governor Haruhiko Kuroda.
The relaxation of state-of-emergency restrictions in October has also prompted analysts to predict a resurgence in domestic consumption, which is aided by a significant reduction in new infections as well as speeding up of vaccinations.
Manufacturing has also come under pressure because of rise in energy prices in recent times. However, according to analysts, this will aid in accelerating inflation in the economy towards the 2 per cent target set by the BOJ.
"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. His speech indicated that even Japan, which has for years been unable to reverse a cycle of deflation, is being affected by the contagion of global inflationary pressure.
"As the economy continues to improve and the impact of mobile phone fee charges dissipate, consumer inflation will gradually accelerate," he said.
In August, a 12 straight month of deflation in was core consumer prices in Japan was reversed with the rise in energy prices were instrumental in offsetting the effect of reduction in mobile phone fees as well as weakening domestic consumption because of the pandemic.