BOJ gloomier on regional economies due to auto output disruptions

October 7, 2021

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan cut its economic assessment for five of the country’s nine regions on Thursday as supply constraints disrupted factory output of cars and other products, clouding the outlook for the export-reliant economy.

In a sign of the broadening damage from the global chip and parts shortage, the central bank slashed its view on output for four regions including the Tokai central Japan area – home to auto giant Toyota Motor Corp.

“Output is stagnating due to shortages in auto parts,” the BOJ said in a quarterly report on regional economies.

Recent rises in energy prices are also adding 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 told the meeting of regional 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.

Kuroda maintained his optimistic view on the economy, saying it is likely to recover as the pandemic’s damage fades thanks to robust external demand and massive fiscal and monetary support.

Inflationary pressure has emerged as a key risk for many countries across the globe, complicating the timing for when policymakers can reduce the massive monetary stimulus they deployed to combat the pandemic’s initial hit.

Japan has not been immune to rising raw material costs, with wholesale inflation hitting a near 13-year high of 5.5% in August. But companies have been slow in passing on the rising costs to households due to weak demand.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Christopher Cushing and Kim Coghill)

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