The Bank of Japan on Monday maintained its upbeat assessment on regional sectors of the economy, saying they are recovering thanks to a pick-up in output and tightening job markets. In a quarterly review of regional activity, the BOJ raised its assessment for the northernmost Hokkaido region and left intact the views for the remaining eight areas, citing robust private consumption that is allowing more firms to raise prices.
“All regions saw their economies recover or recover moderately” reflecting gradual improvements in domestic and external demand, the BOJ said in the report. The optimism came despite soft exports and output, reflecting feeble overseas demand, which have led some analysts to believe the world’s third-largest economy may have hit a temporary soft patch in the April-June quarter.
“Japan’s economy will continue to recover moderately,” BOJ Governor Haruhiko Kuroda said in a speech to a quarterly meeting of the bank’s regional branch managers. While stressing that Japan’s banking system remains stable, Kuroda said the BOJ is carefully watching market developments in the wake of Greece’s referendum that voted against European bailout terms. The Greek referendum has heightened the chance of the country’s exit from the euro, adding to uncertainty over the global outlook and casting doubt on the BOJ’s rosy view that exports will rebound and underpin a steady recovery. Japan’s government lowered its assessment of the economy after an index measuring current conditions fell at the fastest pace in three months.
WEAK YEN LESS A CONCERN
The Kinki region in western Japan, home to electronic giants like Panasonic Corp, saw exports continue to rise but output of machinery and cars weaken as inventory piled up. Atsushi Miyanoya, head of the BOJ’s Osaka branch overseeing the region, said that while exports are set to rebound, the Greek crisis and slowing growth in China were risks.
Fewer companies are now complaining about the de-merits of a weak yen such as rising import costs, as the Greek crisis has heightened the chance global investors will seek the yen as a safe-haven and push up the currency’s value, he said.
“We’re hearing less complaints over the risk of excessive yen weakness,” he told a news conference. The report will be among factors the BOJ will scrutinise when it conducts a quarterly review of its economic and price forecasts at the next policy meeting on July 14-15.
Many analysts expect the BOJ to hold off on expanding stimulus this month, preferring to wait for more clues on whether growth will accelerate enough to nudge inflation closer to its 2 percent target. The central bank has stood pat since expanding stimulus in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained end to deflation.