BOJ offers gloomier view on regional Japan as supply curbs hit autos

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan (BOJ) offered on Thursday its gloomiest view on regional economies in more than a year as supply constraints disrupted factory output of cars and other products, clouding the outlook for the export-reliant economy.

In a quarterly report, the central bank slashed its economic assessment for five of the country’s nine regions – the biggest number of cuts since July last year – signalling alarm over the output disruptions and the hit to consumption from the coronavirus pandemic.

The cautious view may trigger a downgrade in the BOJ’s growth forecast for Asia’s second-biggest economy this fiscal year, when it issues fresh quarterly projections at its Oct. 27-28 policy meeting.

In a sign of the broadening damage from the global chip and parts shortage, the BOJ cut its view on output for four regions including the Tokai central Japan area – home to auto giant Toyota Motor (NYSE:TM) Corp.

“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 goods and machinery remains solid, such supply constraints cloud the outlook for exports, which have been key drivers of Japan’s fragile recovery.

BOJ Governor Haruhiko Kuroda maintained his optimistic view on the economy, saying it is likely to recover as the pandemic’s damage begins to fade.

Analysts also expect consumption to rebound thanks to the lifting of state of emergency curbs from October, a sharp decline in new infections and progress in vaccinations.

Recent rises in energy prices add pressure on manufacturers, though it will help consumer inflation accelerate towards the BOJ’s 2% target.

“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.

Japan’s core consumer prices halted a 12-month run of decline in August, as energy costs offset the impact of cuts in mobile phone fees as well as weak consumption blamed on the coronavirus pandemic.

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