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MNI STATE OF PLAY: BOJ Policy Meeting To Mull Downside Risks

MNI (Tokyo)

Economic recovery is now seen in the first quarter of 2022.

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Downside risks to exports and industrial production are expected to delay, but not derail the Bank of Japan's baseline recovery scenario as the board meets next week to review policy, MNI understands.

Bank officials expect the economy slowed in the third quarter as automobile makers cut production on supply disruptions for parts and semiconductors, see: MNI INSIGHT: BOJ Watching Auto Part, Semiconductor Shortages.

The Sept. 21-22 meeting is expected to keep policy unchanged but will consider lowering the solid assessment on exports and production. Bank officials see more downward pressure on industrial production and exports than in August.

Bank officials now expect a return to pre-pandemic GDP levels in the first quarter of 2022, as earlier estimates of a V-shaped economic recovery in the fourth quarter are unlikely.

Private consumption, including pent-up demand is weak as vaccinated people refrain from going out amid the state of emergency and concerns over infections. Earlier this month, Bank of Japan Deputy Governor Masazumi Wakatabe said the pace of economic recovery has been delayed.


Bank officials expect that solid private demand and the sharp drop of inventories in the past months will prompt manufacturers to increase their production.

There is also the prospect of an end-September end or easing in Covid-19 state of emergency lockdowns now in effect for in 19 out of Japan's 47 prefectures, and chances for price recovery, as Japan makes progress on overall vaccination numbers, even as other key economies in Asia lag such as Australia.

Further ahead, the BOJ will likely revise down the GDP and inflation rate forecast this fiscal year in the release of the quarterly Outlook Report at the Oct. 27-28 meeting.