The Bank of Japan (BOJ) on Thursday painted a cautiously optimistic view on consumption, and joined the government in voicing hope that next week’s re-opening of borders will boost inbound tourism and help the economy benefit from a weak yen.
In a quarterly report on regional economies, however, the central bank warned that some manufacturers were seeing overseas demand weaken, a sign lingering supply constraints and slowing global growth were dimming the outlook for exports.
“Manufacturers, mainly automakers, are suffering from unstable procurement of parts, which is hurting output and exports,” said BOJ Nagoya branch manager Takeshi Nakajima, who oversees a region home to auto giant Toyota Motor Corp.
Many regional Japanese economies are picking up moderately with some firms considering raising wages, the BOJ said in the report, underscoring its hope that household income will grow enough to underpin consumption.
“Companies have high hopes that service consumption will gather momentum, including through inbound spending, as Japan loosens border controls,” it said.
The BOJ’s remarks on inbound tourism echoes those of Prime Minister Fumio Kishida, who has recently advocated boosting inbound tourism to benefit from the yen’s decline.
Japan will loosen its border policies from Tuesday including by dropping a cap on daily arrivals, as it seeks to mitigate the mounting strains from a weak yen such as the higher price firms must pay to import raw material and fuel.
Hirohide Koguchi, the BOJ’s Osaka branch head, said an expected surge in foreign visitors could help boost wages, seen as crucial in the bank’s quest to foster sustainable inflation to reach its 2% target.
“Part-time workers’ pay is already on the rise. If the job market tightens further, that will work to push up wages,” Koguchi told a briefing.
The BOJ remains an outlier among a global wave of central banks tightening monetary policy to combat soaring inflation, triggering a weak yen that has pushed up the cost of importing fuel and food.
While consumer inflation has exceeded his 2% target, BOJ Governor Haruhiko Kuroda has stressed that recent cost-push inflation must be accompanied by higher wage growth for the central bank to consider tweaking its ultra-easy policy.
“Companies enjoying strong earnings or facing labour shortages have raised summer bonuses or considering raising wages next spring,” the BOJ said. “On the other hand, some companies said they were cautious of raising wages due to the severe business environment such as rising raw material costs.”
Mounting fears of a global slowdown and lingering supply disruptions have added to the economic uncertainty and may discourage firms from boosting wages, some analysts say.
“We’ve yet to see a clear pick-up in production and exports,” said BOJ Nagoya branch manager Nakajima. “Chip and parts shortages are disrupting output, so it’s hard for manufacturers to fully enjoy the benefits of a weak yen.”
