BOJ elevates assessments of 4 regional economies
The Bank of Japan yesterday upgraded its assessments of four of the country’s nine regional economies as activity continued to pick up with no antivirus curbs in place, but higher inflation is casting a pall over the outlook for consumption.
In its quarterly report, the BOJ said many regional economies are either “picking up” or “picking up moderately,” helped by the easing of supply constraints and revived activity despite the coronavirus pandemic.
Kanto-Koshinetsu, which includes Tokyo, and the Kinki region centred on Osaka were among the upgraded areas.
Assessments were maintained for the five other regions in the Sakura report, which will be among the materials to be consulted when the Japanese central bank holds a two-day policy meeting next week.
The removal of antivirus curbs has helped the services sector, which was lagging behind manufacturing in recovering from the Covid-19 fallout. Japan also reopened its doors to foreign tourists after installing the strictest border controls among the Group of Seven nations.
Inflation in Japan has quickened at its fastest pace in four decades, with price hikes broadening to hurt household sentiment. But private consumption has so far been supported by pent-up demand, economists say.
Company officials and shop clerks interviewed in the latest survey acknowledged that consumers have become more budget-minded due to price hikes prompted by higher raw material costs and the yen’s sharp depreciation, which has inflated import costs for resource-poor Japan.
“As price hikes are spreading, we’ve seen demand for cheaper, privatebrand products growing and more customers coming on bargain days. This reflects consumers becoming more frugal,” said a supermarket operator.
The BOJ surprised markets in December by widening the trade band for long-term Japanese government bond yields but has taken the view that ultralow interest rates are still needed for the economy to see more robust wage growth in its pursuit of stable and sustainable inflation.
“We are raising pay with a 5 percent hike in fiscal 2023 in mind,” a machinery maker said. Others also stressed the need to hike wages to secure labour but acknowledged their difficult financial conditions amid the pandemic and surging costs.
Japan’s economy likely rebounded in the three months to December after an unexpected contraction in the preceding quarter.
Still, aggressive rate hikes in major economies like the United States and slowing growth in China, a major trading partner for Japan, have raised uncertainty over the world’s third-largest economy.
The BOJ is scheduled to hold a policy meeting next Tuesday and Wednesday, with its inflation forecasts for the current and following fiscal years likely to be upgraded.