The Bank of Japan (BOJ) is expected to downgrade its economic growth forecast for this fiscal year as supply constraints caused by Asian factory shutdowns cripple output and exports, sources said.
The BOJ is also likely to trim its consumer inflation forecast for the year ending in March, five sources said, which would reinforce market expectations that it will lag behind other central banks in whittling down crisis-mode stimulus measures.
The revisions would highlight the fragile state of Japan’s recovery as rising import costs and supply bottlenecks hit firms, casting doubt on the central bank’s view that strength in manufacturing profits would offset weak consumption.
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“Upcoming data will likely show a pretty big plunge in Japanese exports and output due to factory shutdowns in Asia. That will clearly push down economic growth,” said one of the sources, who spoke on condition of anonymity.
“Japan’s recovery isn’t derailed, but the timing of a clear rebound may have been delayed,” another source said.
The revisions are to be part of the BOJ’s quarterly growth and price forecasts due at its next policy meeting from Oct. 27 to 28.
While global demand remains firm, analysts expect Japan’s exports to weaken in coming months as parts shortages and factory shutdowns in Asia caused by the pandemic disrupt production for manufacturers like Toyota Motor Corp.
“We must be vigilant to the impact of supply constraints caused by supply chain disruptions in Asia,” BOJ Deputy Governor Masayoshi Amamiya said yesterday, pointing to uncertainties over the economic outlook.
BOJ policymakers are counting on an expected rebound in consumption after the government’s decision to lift state of emergency curbs on Sept. 30, but there is uncertainty on when and to what extent pent-up demand would begin to prop up growth.
Such uncertainty could force the BOJ to offer a bleaker view on the economy at this month’s meeting than the current assessment that it is “picking up as a trend,” the sources said.
After slumping 4.4 percent in the year that ended in March, Japan’s economy has been emerging from the doldrums as solid global demand moderated the hit to consumption from COVID-19 curbs.
Under current projections made in July, the BOJ expects the economy to expand 3.8 percent this fiscal year and rise 2.7 percent in the next.
That compared with forecasts of a 3.2 percent rise in fiscal 2021 and a 2.8 percent gain next year in a Reuters poll.
The central bank expects core consumer prices, which fell 0.4 percent in the previous fiscal year, to rise 0.6 percent in the current year and increase 0.9 percent in the next.
Analysts polled by Reuters expect core consumer inflation to be flat in fiscal 2021 and rise 0.5 percent in fiscal 2022.
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