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BOJ cuts view on 2 areas, keeps others unchanged as recovery fragile

Bank of Japan Governor Haruhiko Kuroda, far left, attends a teleconference with branch managers on April 15, 2021, at the central bank's head office in Tokyo. (Kyodo)

TOKYO (Kyodo) -- The Bank of Japan on Thursday downgraded its economic assessments of two of the country's nine regions while keeping the rest unchanged, a sign that economic recovery from the coronavirus pandemic remains fragile and patchy.

    In its quarterly Sakura report, the BOJ said the economy remains in a severe situation due to the pandemic but it has been "on a pickup trend" or has "started to pick up" in many regions of Japan, in line with the view expressed by Governor Haruhiko Kuroda.

    It was the second straight quarterly downgrade of Hokkaido in northern Japan, with its economy "more or less flat" after the BOJ said in its previous report in January that the pace of pickup was slowing. The other region that saw a cut was Tohoku in northeastern Japan.

    The export-driven Japanese economy has emerged from the initial shock of the COVID-19 crisis. But many economists expect the recovery to remain slow, with vaccination progress key.

    Some urban areas, notably Osaka and Tokyo, are struggling with a resurgence of infections following the full lifting of the country's second coronavirus state of emergency in March.

    Those areas are now under a monthlong state of quasi-emergency, allowing special measures to be taken as they deal with what medical experts call a fourth wave of infections.

    "The Japanese economy has picked up as a trend, although it has remained in a severe situation due to the impact of the novel coronavirus at home and abroad," Kuroda told a video teleconference of BOJ branch managers ahead of the report's release.

    Kuroda pointed to the difficulties companies are facing in raising funds even under the BOJ's accommodative monetary policy, saying the bank will not hesitate to take additional easing steps if needed.

    Japan's economic recovery is expected to continue, albeit at a moderate pace, supported by a pickup in overseas demand, accommodative financial conditions and the government's stimulus measures, Kuroda said, while noting consumption in the services sector will remain under downward pressure.

    The BOJ said signs of increased consumption have "paused" in Kanto-Koshinetsu, which includes the Tokyo metropolitan area. Services consumption has been facing "strong downward pressure" in the Kinki region that encompasses Osaka.

    The pandemic has limited people's activities, putting a damper on consumption, which accounts for more than half of the Japanese economy.

    Japanese households are increasingly building up cash, pushing the rate of savings to a 26-year high in 2020, according to the government.

    Japan is lagging behind major economies like the United States and Britain in the rollout of COVID-19 vaccines. The global chip shortage is also a concern for manufacturers with a recent fire at a plant in Japan operated by Renesas Electronics Corp., a major auto chip supplier, adding to the woes.

    "The pace of auto parts production is slowing as pent-up demand for cars is running its course," a transport equipment maker in Hokkaido told the BOJ. "We are concerned that automakers will go ahead with more production cuts due to the semiconductor shortage."

    The BOJ is scheduled to hold a policy meeting on April 26 to 27 during which the latest report will serve as a reference.

    At the previous policy-setting meeting in March, the BOJ tweaked its policy framework to prepare for protracted monetary easing as the pandemic drags on, with the bank's 2 percent inflation target remaining elusive.

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