TOKYO, Reuters – Japan’s January new car sales fell, according to data released Tuesday. This is in addition to signs that the economy may contract this quarter, due to supply chain disruptions continuing and an increase in Omicron coronavirus infections.

Bank of Japan policymakers have little hope that the pandemic will end, but the virus continues to be an issue.

According to industry data, domestic new car sales dropped 14.2% from last year, a decrease of 11.4% in December.

Some parts makers have had to stop production due to an increase in COVID-19-related cases. This has caused disruptions in output and delays for auto giants like Toyota Motor Corp. (NYSE:)

Suzuki Motor Corp said Tuesday that it will stop some domestic operations due to part shortages.

Yoshimasa Maruyama (chief market economist, SMBC Nikko Securities) stated that “Demand remains firm but supply constraints are likely to weigh on new car sales in February”

Japan’s economy is in danger due to curbs that have been imposed in certain areas to counter the pandemic. The dimming outlook on output increases uncertainty.

Japan’s confidence in consumers fell for the second month in January, according to a survey by government on Monday. The spread of Omicron had a negative effect on shoppers’ spirits.

Analysts warn that the economy may contract during the current quarter, despite an anticipated rebound in October-December economic growth.

Ryutaro Ko, Chief Japan Economist at BNP paribas (OTC): “Depending on Omicron’s effect on corporate activities, there’s a possibility Japan could suffer negative growth.”

Yoshiki Shinke (chief economist, Dai-ichi Life Research Institute) also believes there is a chance for a January-March contraction.

Initial expectations were that auto output would rebound and act as a catalyst for Japan’s economic recovery. “In reality, however, the supply constraint hit on auto output will likely slow growth,” he stated.