TOKYO -- The Bank of Japan on Thursday trimmed its growth forecast for the current fiscal year after COVID-19 disruptions forced automakers to slash production amid a shortage of microchips and other key parts.
Coronavirus outbreaks in countries such as Malaysia and Vietnam have overshadowed semiconductor supply chains, sparking 30-40% drops in output in Japan's key auto sector over the September-October period, although cuts are expected to ease from November.
In its quarterly outlook, the central bank estimates economic growth at 3.4% for the fiscal year ending next March, compared with the 3.8% touted in July. It now projects consumer inflation at 0.0%, after a July forecast of 0.6%.
The report comes as bright spots start to emerge in Japan's economy. Personal consumption is rebounding amid a sharp fall in the country's COVID cases since September that prompted the lifting of a national state of emergency on Oct. 1 for the first time in six months.
For the fiscal year starting next April, the BOJ expects growth of 2.9% versus a July forecast of 2.7%, and consumer inflation at 0.9% unchanged from its earlier estimate.
The BOJ decided to hold its monetary levers in place -- guiding short-term interest rates to minus 0.1% and long-term rates to around zero.
It is also keeping intact the COVID credit facility introduced in March 2000 to take steps such as buying corporate bonds and commercial paper as well as offering one-year interest-free loans to banks supporting coronavirus-hit businesses.
The decision comes as central banks around the world start tightening monetary policy in response to rising consumer inflation triggered by global supply shortages. South Korea's central bank has raised policy rates to 0.75% from 0.5%, while New Zealand's has lifted them to 0.5% from 0.25%.
The U.S. Federal Reserve is also expected to start hiking rates next year, earlier than the 2023 date forecast six months ago.
The diverging interest rate outlook between the U.S. and Japan has driven a sharp depreciation in the Japanese yen against the dollar, with the Japanese currency touching a three-year low of 114 yen earlier in October.
The weakening yen could raise prices for imported goods and drive up production costs, complicating the BOJ's efforts to support economic recovery with loose monetary policy.