October 15, 2019 / 12:54 AM / 2 months ago

BOJ keeps sanguine view of regional economy, stands ready to act

TOKYO (Reuters) - The Bank of Japan on Tuesday raised its assessment for one of the country’s nine regions and stuck to its sanguine view on the rest, though frail factory production and exports suggested pressure for more stimulus is unlikely to ease anytime soon.

FILE PHOTO: Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan July 30, 2019. REUTERS/Kim Kyung-Hoon

The central bank described all regional economies as either expanding or recovering in its regional report, which it will closely scrutinise among various other surveys and indicators, in the run-up to its next policy-setting meeting on Oct. 30-31.

“Domestic demand has continued on an uptrend, although exports, production and business sentiment have been affected by a slowdown in overseas economies,” the central bank said in a quarterly report analysing the economic conditions of the regional areas of Japan.

“A virtuous cycle from income to spending remains intact at both the corporate sector and households,” it added.

The central bank raised its economic view of Hokkaido, northern Japan, to say it has been “expanding moderately,” thanks to infrastructure spending on reconstruction from last year’s natural disasters. Previously, the bank said the region’s economy had been recovering moderately.

On the downside, reinforcing evidence that the bruising Sino-U.S. trade war and global slowdown were taking a toll on the export reliant Japan, the BOJ cut its view on factory output in the western Japanese region of Shikoku.

The central bank attributed the downgrade to slowing demand for production machinery and electronics parts and devices.

However, the central bank stuck to its views on private consumption on all the nine regions, describing them as either staying firm, picking up, recovering or increasing moderately.

It also noted some fluctuations caused by the Oct. 1 sales tax hike in some regions.

Solid consumption, weak exports

Firmness in private consumption, which accounts for well over half of economic output, could bolster the BOJ’s argument that solid domestic demand will offset the pain of weakening exports.

The BOJ’s main scenario is that external pressure will ease in the latter half of this fiscal year and next on the back of a recovery in demand for items such as IT-related goods.

“However, uncertainty over overseas economies, including U.S.-China trade friction, is large, so we must be vigilant to its impacts on Japan’s exports and output,” said Yasuhiro Yamada, BOJ’s branch manager in Osaka, western Japan - home to electronic giants such as Panasonic Corp (6752.T).

“Many companies have voiced expectations that the tax hike impact will be smaller than the last time, thanks to various measures (the government has) taken to level out demand,” he told a news conference.

BOJ Governor Haruhiko Kuroda said on Tuesday the central bank would not hesitate to take additional easing steps if risks to the economy grow and threaten momentum towards its 2% inflation target.

“We need to pay closer attention to the possibility that momentum towards achieving our price target will be lost,” Kuroda said in a speech at a quarterly meeting of the central bank’s regional branch managers.

The BOJ will also monitor the economic impact of Saturday’s powerful typhoon and strive to maintain financial functioning and smooth settlement of funds, he added.

Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher & Shri Navaratnam

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