The Bank of Japan (BOJ) on Monday lowered its assessment for the majority of regional economies in the country, with its Governor warning of uncertainty over the situation in Ukraine amid surging commodity prices, as well as Covid-19-related weakness.
BOJ Governor Haruhiko Kuroda told a meeting of the bank’s branch managers that higher inflation could be caused by rising costs for energy supplies and raw materials, and the core consumer price index excluding volatile fresh food items is likely to “clearly” rise.
Kuroda also said that “extremely high uncertainties” remain over how the situation in Ukraine will affect the prices of commodities and the Japanese economy overall.
“There’s very high uncertainty on how developments in Ukraine could affect Japan’s economy and prices,” he said.
The BOJ’s view of its regional economies was worse in its latest assessment as stated in its quarterly “Sakura Report” than it was in January for eight of the country’s nine regions, with the negative economic impact of the virus continuing to take a toll.
“Japan’s economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of Covid-19,” Kuroda added.
“As downward pressure on service consumption and the impact of supply shortages diminish, a pickup in overseas demand, accommodative monetary policy, and the government’s economic stimulus will likely help the Japanese economy recover despite being affected by rising commodity prices,” the BOJ chief said.
The bank’s quarterly regional report will inform its next policy meeting, although for the time being unlike other major central banks, Kuroda has said “commodity inflation is unlikely to prompt the BOJ to change its monetary policy because it will not last long.”
Kuroda has been particularly vocal in parliament about the yen’s recent rapid depreciation, leading the central bank to conduct an emergency bond buying program, with the BOJ chief stating that the yen’s fall has been “somewhat rapid” in his strongest warning against currency volatility since the yen plunged to a six-year low in March.