BOJ downgrades FY 2021/22 growth and inflation outlooks

After leaving the monetary policy on hold, as expected, the Bank of Japan (BOJ) downgraded its growth and inflation forecast for the current fiscal year (FY) 2021/22.

Key takeaways

Core CPI median forecast for fiscal 2021/22 at 0.0% vs +0.6% in July.

Core CPI median forecast for fiscal 2022/23 at +0.9% vs +0.9% in July.

Core CPI median forecast for fiscal 2023/24 at +1.0% vs +1.0% in July.

Real GDP median forecast for fiscal 2021/22 at +3.4% vs +3.8% in July.

Real GDP median forecast for fiscal 2022/23 at +2.9% vs +2.7% in July.

Real GDP median forecast for fiscal 2023/24 at +1.3% vs +1.3% in July.

Japan's economy likely to recover, accelerate pace of growth as pandemic's impact subsides.

Japan's consumer inflation likely to gradually accelerate.

Must be vigilant to risks including developments of pandemic, impact on economies.

Japan's economy remains in severe state but picking up as a trend.

Exports, output weak due to supply constraints but increasing as a trend.

Capex showing weakness in some sectors but picking up as a whole.

Service spending remains under pressure but consumption showing signs of pickup.

Japan inflation expectations picking up.

High uncertainties over COVID-19 impact on consumption activities.

Need to pay attention to effects of supply-side constraints.

As impact of COVID-19 wanes demand imbalances and output and shipping bottlenecks likely to go to resolution.

Exports, output to slow temporarily on supply constraints.

Signs of improvement likely to spread from corporate to household sector.

Auto output to slow briefly on supply constraint but solid global it demand to help overall output continue to increase.

Japan's financial system stable as a whole.

Japan's financial intermediation may stagnate if bank profits come under prolonged pressure from COVID-19.

Cellphone fee cuts by major carriers likely to have pushed down CPI 1.1% point.

Must be mindful of risk impact of supply constraints may expand, be prolonged.

Corporate profits likely to improve as a trend even though they are affected by worsening terms of trade, supply constraints.

Households likely to become more accepting to price hikes as wages rise, allowing for a gradual shift in corporate price-setting behaviour.

Corporate funding conditions are improving as a whole, but remain severe for small, medium-firms, some sectors.