MNI POLICY: BOJ Branches See Severe Conditions, Recovery Signs

Many of the Bank of Japan's branch managers said economic conditions in their respective region are severe, but they also noted signs of a pick-up while remaining aware of the potential impact of the resurgent Covid-19 on the service sector, a BOJ report released Thursday showed.

The economic assessment of three regions (Hokuriku, Shikoku and Kyushu-Okinawa) was upgraded from three months ago in the central bank's quarterly regional economic report while that of Hokkaido was downgraded. The assessment of the remaining five was unchanged.

"Many regions, while noting that their economy had been in a severe situation due to the impact of the novel coronavirus, reported that it had shown signs of a pick-up. However, the impact of the resurgence of Covid-19 had been pointed out recently, primarily in the services industry," the latest report said.

All branches said that production is recovering or increasing but that employment and income conditions are weak.

Many managers said that private consumption is recovering, although business in the service sector is weak.

COVID-19 IMPACT

Below are some comments from branch managers after consultations with regional business leaders:

-Related to exports and production

A transport equipment firm said exports are increasing and the company expects production to stay at high levels.

A machine firm said demand for capital goods is increasing and a machine production firm noted signs of recovering investment.

--Related to capex

A machine production firm reduced capex sharply and plans to implement minimum capex.

A transport equipment firm resumed capex on the back of recovering demand for autos at home and abroad.

--Non-manufacturers voiced concern over the impact of weak consumer spending caused by rising infections.

Many non-manufacturers decided to postpone the implementation of capex but some increased hiring amid concerns over a structural labour shortage.