The Bank of Japan on Monday maintained most of its regional economic assessments, downgrading only one of nine regions, saying the economy has been recovering moderately despite some weakness following April’s consumption tax increase.
The bank released a quarterly report on local economies, where smaller businesses have apparently been increasingly hit by weaker private consumption and industrial output after the tax hike as well as by costlier raw materials and other import prices due to the weaker yen.
“All regions . . . reported that the economy had continued to recover or had been recovering moderately as a trend,” the quarterly report said, after the BOJ earlier in the day held a meeting of its branch managers where Gov. Haruhiko Kuroda stressed that the bank’s aggressive monetary easing has worked to boost the economy.
“The background to these reports included the fact that although some weakness on the production side had been observed in some aspects, domestic demand had been firm, and the employment and income situation had been improving steadily,” the report said.
Of the nine regions, only Tohoku lowered its assessment, citing a slowdown in public investment and industrial output as well as weaker demand following the April 1 sales tax rise from 5 percent to 8 percent.
It was the first downgrading in 21 months by the region, which was struck by the massive Great East Japan Earthquake and tsunami in March 2011.
All eight of the other regions — Hokkaido, Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku, Shikoku and Kyushu-Okinawa — maintained their view, although each noted weak consumption, which was also affected by unstable weather during the summer.
In its previous report in July, the BOJ held all of the nine regional assessments steady.
The latest report reflected the BOJ sticking to its main scenario that the economy will continue its moderate recovery by somehow overcoming negative shocks from the tax increase.
Speaking to the branch managers, Kuroda said the bank’s current policy, dubbed “quantitative and qualitative easing,” has continued to “exert its intended effects.”
The BOJ introduced the policy in April last year. It involves massive asset purchases from financial institutions to provide sufficient money to the economy and lift its inflation rate to 2 percent in about two years.
Kuroda has repeatedly said the BOJ will continue with the policy “as long as it is necessary for maintaining that (inflation) target in a stable manner.”
The nation’s core consumer price index, which excludes volatile fresh food prices, rose 1.1 percent in August from a year earlier, without the direct effects of the April consumption tax hike.
The weaker inflation compared with previous months, although in line with the BOJ’s projections, has added to the view that the 2 percent goal will not be reached next April, when two years will have passed since the introduction of the policy.
The BOJ has not specifically forecast when it will reach the goal. However, many market participants see the deadline as being next spring and believe any prospect of missing the target at that time will lead to pressure from lawmakers on the bank to implement additional easing.