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The Bank of Japan 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.
