By Leika Kihara

TOKYO (Reuters] – The Bank of Japan lowered its economic assessment of five of Japan’s nine regions. Supply constraints caused a drop in car production, which skewed the outlook of Japan’s export-reliant economies.

The central bank has lowered its output view for four regions, including Tokai in central Japan, as a sign that the chip and parts shortage is causing more damage. Toyota Motor Corp.

The BOJ reported in its quarterly regional economy report that output is slowing down due to shortages of parts for autos.

The recent rise in energy prices is also putting pressure on manufacturers. However, it will allow consumer inflation to accelerate toward the BOJ’s 2 percent target.

Kuroda stated that core consumer inflation hovers around 0%, but we anticipate it turning slightly positive due to rising energy prices. This indicates that the global inflationary pressures are spreading to countries which have long struggled with deflation.

“Consumer inflation will slowly accelerate as the economy grows and the effect of mobile phone charges subsides,” he stated.

Japan’s core consumer price indexes stopped falling for 12 months in August. The impact of the cuts in mobile fees and the weak consumption attributed to the coronavirus epidemic offset energy costs.

Kuroda maintained an optimistic outlook on the economy and said it would recover once the effects of the pandemic subside. This was due to strong external demand as well as massive fiscal and monetary support.

Many countries around the world have identified inflationary pressure as a major risk. This complicates the timing of when the policymakers will be able to reduce the huge monetary stimulus that was used in the initial pandemic.

Japan is not immune from rising raw materials costs. In August, wholesale inflation reached a record high of 5.5%. This was almost 13 years ago. Because of weak demand, however, the companies have not been quick to pass rising costs onto households.