MNI INSIGHT: BOJ Recovery View Intact Despite Q3 GDP Headwinds

Bank of Japan policy officials are focused on how the economy evolves in the third quarter as chances for an extension of lockdown conditions in Japan remains and exports take a hit from supply-chain glitches in Southeast Asia even while maintaining a recovery scenario, MNI understands.

Japan's GDP expanded in the second quarter as expected.

But in the current quarter bank officials are paying attention to the impact of the government restrictions to curb the spread of Covid-19 and a shortage of automobile parts caused by the closure of plans that provide auto parts in Southeast Asian countries as reported: MNI: BOJ Worried On Exports, Output On SE Asia Covid-19 Rates.

STATE OF EMERGENCY

Concerns are focused on a possible extension of a state of emergency in several prefecture that is scheduled to end on Aug. 31, but the spread of Delta variants in many cities has hit sentiment.

Still, BOJ officials expect private consumption, including pent-up demand, to recover gradually in or after the July-September period as part of a sustained recovery with vaccination rates expected to climb into the fall season. A former BOJ chief economist recently told MNI that the economy could weather the pandemic lockdowns.

The BOJ will likely maintain the baseline scenario that Japan's economy is likely to recover, although the level of economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being.