BOJ expects to offer bleaker view on exports and output this month
The gloomier assessment could cast doubt on the Boj’s view that the economy is on track for a moderate recovery as it gears up for its policy meeting on Sept.21-22
The Bank of Japan (BOJ) is expected to offer a slightly bleaker view on exports and output this month, or warn of heightening risks from supply disruptions caused by factory shutdowns in Southeast Asia, said sources familiar with its thinking.
The gloomier assessment, combined with weaker-than-expected consumption in August due to coronavirus curbs, could cast doubt on the Boj’s view that the economy is on track for a moderate recovery as it gears up for its policy meeting on Sept. 21-22.
“While overseas demand remains strong, the supply shock from Southeast Asia has put an unexpected damper on output,” said a source familiar with the Boj’s thinking, a view echoed by three other sources. The sources could not be named because they were not authorised to speak publicly.
“Risks to the economy have heightened,” a second source said, warning of uncertainty over when supply chain disruptions will be resolved, and how long it will take for the economy to fully emerge from its pandemic doldrums.
Robust exports have helped underpin Japan’s fragile economic recovery from COVID-19. But supply constraints, mainly for chips and parts produced in Southeast Asia, have forced some Japanese firms to slash output, raising concerns among policymakers that Japan’s recovery could be delayed. In its last assessment made in July, the BOJ described exports and output as “continuing to increase steadily.”
At the September meeting, the BOJ may qualify that view by mentioning how output, in particular, is temporarily weakening due to the supply constraints, the sources said.
The BOJ board will also debate at the meeting whether the recent weak batch of data would warrant downgrading its assessment of the economy from the current view that it is “picking up as a trend,” the sources said.
Most BOJ officials see no need to alter their long-term view the economy will recover next year through 2023 as the pandemic subsides, and expect solid global demand to underpin exports, they said.
But there is growing alarm within the central bank that the start of Japan’s recovery could be delayed with supply botlenecks and prolonged pandemic-related curbs weighing on the fragile economy, they said.
Japan has been struggling with a fith wave of the virus and on Thursday extended its longrunning curbs until the end of this month for Tokyo and other regions, a move seen further weighing on household spending.
“A while ago, I thought the economy would recover as vaccinations proceed. Now, we’re seeing risks emerge regarding that scenario,” BOJ Deputy Governor Masazumi Wakatabe told a briefing last week. “I think Japan’s recovery will be delayed.”
Toyota Motor Corp cut its annual production target by 300,000 vehicles on Friday as rising COVID-19 infections slowed output at parts factories in Vietnam and Malaysia, compounding a global shortage of auto chips.
Japan’s auto industry lobby said disruptions could last through October. The BOJ is widely expected to keep monetary setings unchanged at the September meeting. It will issue revised quarterly growth and inflation forecasts at a subsequent meeting on Oct.27-28.
Meanwhile the Japan needs nuclear power, the head of an electricity sector federation said on Friday, adding that the industry would have a serious debate on energy policy with whoever becomes the next prime minister.
Japan’s popular coronavirus vaccination minister, Taro Kono, previously known as a strong critic of nuclear energy, on Friday announced his candidacy to lead the ruling party and, by extension, become the next prime minister. “We believe Japan needs nuclear power on the basis of current science and technology,” Kazuhiro Ikebe, the chairman of the Federation of Electric Power Companies of Japan (FEPC), told reporters.
“It is no use for us to be wary,” Ikebe said when asked if the industry was cautious about Kono becoming prime minister.
“We will have a thorough and serious discussion with him and try to make him understand our stance,” Ikebe said, referring to what would happen if Kono were to become leader.
Kono sounded more cautious on his stance on nuclear power at a Friday news conference, declining to be labelled “anti-nuclear”.
He said nuclear power plants dormant since the 2011 Fukushima disaster, that are deemed safe, could be restarted to help achieve a goal of carbon neutrality by 2050.
But Kono said building new plants was “unrealistic” and nuclear power usage will eventually become zero.
Ikebe said discussions were necessary. “It’s difficult to guess what timeline he was talking about... we’ll need to have scientific debates,” Ikebe said. A drat of Japan’s latest energy policy, unveiled in July, let the nuclear target unchanged at 20-22 per cent of the electricity mix for 2030.