January 15, 2020 / 10:52 AM / a month ago

BOJ cuts economic view on three regions, stays cautiously optimistic

TOKYO (Reuters) - The Bank of Japan cut its economic assessment for three of the country’s nine regions on Wednesday but remained cautiously optimistic that domestic demand could help offset a slowdown in exports and manufacturing.

FILE PHOTO: A man walks past the Bank of Japan building in Tokyo, Japan November 1, 2016. REUTERS/Kim Kyung-Hoon

All of the regions kept their assessment on private consumption unchanged, despite fluctuations in spending patterns around the Oct. 1 sales tax hike, likely backing the BOJ’s rosy view that solid domestic demand will offset external headwinds.

The BOJ’s optimism is likely to allow it to justify keeping monetary policy steady for the time being.

“All nine regions reported that their economies were either expanding or recovering,” the central bank said in the regional report. “Domestic demand continued on an uptrend, with a virtuous cycle from income to spending operating in both the corporate and household sectors.”

The downgrades for the northern region of Hokuriku, the central region of Tokai - home to Toyota Motor Corp (7203.T) - and the western area of Chugoku were due to weak exports and output caused by the global slowdown, which has slowed their rate of expansion.

Still, Tokiko Shimizu, the Nagoya branch manager overseeing the Tokai region, said positive signs were emerging, while the impact of the sales tax hike will be limited.

Demand for machine tools from the United States and China appeared to be bottoming out, adjustments in car output and inventories in China were making steady progress, and production of IT-related goods was recovering, she said.

“A moderate expansion will continue in the Tokai region for the time being, but the economy will be getting on a firmer footing as factors weighing on output and exports taper from now on,” she told reporters after the BOJ branch managers’ meeting.

UPWARD REVISION

The central bank is likely to slightly revise up its economic forecasts for this fiscal year to March at its policy review next week, boosted by the government’s latest spending package, sources told Reuters.

The more optimistic outlook comes from an improvement in domestic demand due to stronger corporate investment, solid household income and employment, and an expected boost from public spending.

The BOJ’s nine-member board will also review its current forecasts for core consumer inflation to hit 1.1% in fiscal 2020 and to accelerate to 1.5% the following year, although big changes to these projections are seen as unlikely.

Projections of tame inflation should further back market expectations that the BOJ will keep monetary policy ultra-loose to achieve its elusive 2% price goal.

At the branch managers’ meeting, Governor Haruhiko Kuroda held to the BOJ’s view that the Japanese economy will see moderate growth despite weak exports and output, hit by the global slowdown and natural disasters at home.

Kuroda dropped few hints on what steps the central bank might take next, while repeating his readiness to ease further as needed to achieve the inflation target.

Kuroda also said consumer inflation, which is hovering around 0.5%, would accelerate towards 2%, even though it could be affected for the time being by falling oil prices.

“We will adjust policy as necessary to maintain momentum towards our price stability target while examining risks,” he said. “We will not hesitate to take additional easing steps if risks heighten to an extent that the momentum towards the price target is undermined.”

Editing by Chris Gallagher, Jacqueline Wong & Kim Coghill

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