The Bank of Japan on Thursday revised upward the assessments of all nine regional economies in the country compared with three months earlier, encouraged by pickups in business investment and private consumption.
“Many regions noted that the economy had been recovering moderately or picking up, while some regions noted that the economy continued to pause generally, although there were signs of picking up,” the central bank said in a quarterly report released after a one-day meeting of its branch managers.
Of the nine areas, eight reported growth in capital spending, apparently supported by improving corporate earnings, while seven said private consumption continued to increase. All of them noted robust car sales due to the government’s fiscal stimulus measures.
Earlier in the day, BOJ Gov. Masaaki Shirakawa told the managers that the economy has shown signs toward a moderate recovery, though he warned the nation’s financial system is not necessarily immune to the impact from the sovereign debt crisis in Europe.
Supported by robust domestic demand, partly associated with reconstruction work following the March 2011 earthquake and tsunami, the economy “is about to recover moderately,” Shirakawa said, adding, “Public investment is growing, while capital spending is on a trend of moderate increase amid improving corporate earnings.”
Thursday’s assessment marked the first time in nearly three years that all nine regions had been upgraded together. The nine areas include the disaster-hit region of Tohoku.
The assessments, also aided by stable industrial output, added to a brisk atmosphere generated earlier this week by the BOJ’s “tankan” survey that showed business sentiment among large manufacturers improved in the three months through June. That was the first rise in three quarters and came despite market forecasts of sentiment deteriorating or remaining flat.
The outcomes helped to counter sluggish exports amid the stronger yen and flagging demand overseas affected by the eurozone crisis, and may stimulate market participants’ expectations that the BOJ would hold back from deciding on any additional monetary easing to boost business activity and economic growth.
The bank will hold a policy meeting next week.
Shirakawa, however, also warned of downside risks to the economy, saying, “We must keep paying close attention to risks that the European debt problems could affect Japan” through financial channels, while indicating the BOJ would keep pursuing “powerful monetary easing” to fight deflation and ensure sustainable growth under price stability in Japan.
“Future development in the European debt problems is the (risk) factor that we must pay attention to the most,” he said. “Uncertainty over the global economy remains high.”
The warning came even after EU leaders agreed last week to some specific measures to ease tension over the fiscal and banking crisis in some eurozone countries, including offering the bloc’bailout funds directly to recapitalize struggling banks.
Shirakawa also cited the “potential for recovery in the U.S. economy” as a source of his concerns, as available data have given mixed indications on the prospects of the world’s biggest economy. As for emerging economies, he asked whether they could successfully “balance price stability and growth.”
The world economy as a whole has so far failed to exit from a slowdown phase, he acknowledged.