The Bank of Japan on Monday downgraded its economic assessments for two of the country’s nine regions — Chugoku and Shikoku — as the pace of recovery from the coronavirus pandemic is slowing.
In its quarterly Sakura report for July, the BOJ raised its outlooks for two regions while maintaining its assessments of the remaining five, underscoring the uneven nature of Japan’s economic recovery.
The central bank said the economy remains in a “severe situation” due to the impact of the pandemic but many regions reported that the economy has “picked up as a trend” or “started to pick up.”
The two regions that saw upgrades were Kinki, which includes Osaka Prefecture, and Hokuriku in central Japan. The Kanto-Koshinetsu region centering on Tokyo was among the five regions for which assessments were maintained.
“For the time being, economic activity is expected to stay at lower levels than before the coronavirus pandemic,” Gov. Haruhiko Kuroda told a videoconference of BOJ branch managers before the release of the report.
Less than three weeks before the opening of the Tokyo Olympics, Japan is battling to rein in rising coronavirus cases in urban areas amid worries about a further spread of the delta variant.
Economists and BOJ policymakers expect further progress in vaccinations will lead to more economic activity, helping the services sector, which has lagged behind manufacturers in the pace of its recovery.
The BOJ report said downward pressure on consumption of services remained in areas under a COVID-19 quasi-state of emergency, such as Kanto-Koshinetsu, Tokai and Kinki.
Manufacturers such as automakers have seen a recovery from the pandemic much sooner than service providers, buoyed by strong demand in the United States and China.
Chugoku was the only region in which the pace of a pickup in production was slowing down.
“We have been adjusting production of auto parts as automakers have cut output amid the shortage of chips since May,” a company in the auto sector in Chugoku was quoted as saying in the report. “The impact of the shortage will likely ease gradually from August, so we plan to ramp up production to catch up from this fall.”
The Sakura report, named after its cherry blossom-colored cover, will be among the materials used at the BOJ’s policy-setting meeting next week.
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