The Bank of Japan raised its economic assessment in seven of the country’s nine regions as the export-led recovery begins to gain momentum even as deflation persists.
All local economies “had picked up, although there remained differences in the pace and extent of the recovery,” the central bank said in its quarterly regional report Thursday. Shikoku and Kyushu-Okinawa kept their assessments unchanged, while the others saw an “upward change.”
The report adds to signs that policymakers may raise estimates for economic growth and inflation in their semiannual outlook April 30. BOJ Gov. Masaaki Shirakawa told the regional chiefs that the risk of a return to a recession is “pretty much gone” and growth will gradually accelerate as the rebound, driven by overseas demand, spreads to households.
“The BOJ will probably upgrade its predictions for both economic growth and prices,” Yoshimasa Maruyama, a senior economist at Itochu Corp., said before Thursday’s report. “The focus is on how much confidence the BOJ can show in terms of ending deflation.”
Six regions, including Tokyo and Osaka, reported that declines in business investment were coming to a halt, while Tokai, home to Toyota Motor Corp., said capital spending remained at a low level.
Four areas said there were signs of improvement or leveling out of employment and incomes. Household incomes remained on a declining trend in most locations, the BOJ said.
The regional heads met a day after counterparts at the U.S. Federal Reserve said the economy there expanded “somewhat” across most of the country in March as consumer spending and manufacturing improved. In China, Japan’s biggest export market, the government said Thursday that growth accelerated to 11.9 percent last quarter, the fastest pace in almost three years.
Shirakawa repeated his view that declines in consumer prices will keep moderating. Beating deflation remains a “crucial challenge” and the policy board will maintain its “very accommodative” stance, he told the branches.
The BOJ has kept its benchmark interest rate at 0.1 percent since December 2008. It doubled a credit program for commercial lenders to ¥20 trillion in March amid persistent deflation and as Finance Minister Naoto Kan led government calls for more action.
“Political pressure on the BOJ to do more will escalate as a July election approaches,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. “The BOJ is probably ready to implement additional measures, though it will be difficult to get rid of deflation anytime soon.”
Reports in the past month show exports rose at their fastest pace in 30 years and sentiment among businesses and households is also improving as the country puts its worst postwar recession behind it. Still, the rebound is largest confined to industrial areas that cater to exports, Adachi said.
“Among regional economies, the areas with many exporters, like the Nagoya region, are benefiting more from the brisk overseas demand than other regions,” he said.
Nagoya, part of the Tokai region, is the base for Toyota, whose U.S. sales rose 41 percent in March even as the company struggled with recalls over safety problems. Osaka is home to electronics makers including Panasonic Corp. and Sharp Corp.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.