BoJ downgrades growth and inflation outlook for fiscal 2021/22

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After leaving your monetary policy unchanged, as expected, The Bank of Japan (BoJ) has lowered its growth and inflation forecast for the current fiscal year (fiscal year) 2021/22.

Key comments

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

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

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

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

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

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

The Japanese economy is likely to recover and accelerate the pace of growth as the impact of the pandemic diminishes.

It is likely that the Japan’s consumer inflation gradually accelerates.

One must be aware of the risks, including the evolution of the pandemic, the impact on the economy.

The Japanese economy is still in a severe state, but rebounding as a trend.

Exports and production are weak due to supply constraints, but increasing as a trend.

Capex showing weakness in some sectors, but rebounding as a whole.

Service spending remains under pressure, but consumption shows signs of rebounding.

Inflation expectations in Japan rebound.

High uncertainties about the impact of COVID-19 on consumer activities.

Need to lend attention to the effects of supply-side constraints.

As the impact of COVID-19 diminishes demand imbalances and production and shipping bottlenecks that will likely be resolved.

Exports and production may slow down temporarily due to supply restrictions.

Signs of improvement are likely to extend from the corporate to the household sector.

Automated production will briefly slow in tight supply, but is strong globally and demand to help overall production continue to rise.

Japan’s financial system remains stable as a whole.

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

Cuts in mobile phone rates by major carriers have likely pushed the CPI down 1.1%.

You should be aware that the risk impact of supply restrictions can be expansive and long-lasting.

Corporate earnings are likely to improve as a trend despite being affected by worsening terms of trade and supply constraints.

Households are likely to be more accepting of price hikes as wages rise, allowing a gradual change in corporate pricing behavior.

Business financing conditions are improving overall, but remain severe for small and medium-sized enterprises in some sectors.

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