The Bank of Japan on Thursday upgraded its assessments of eight out of nine regional economies, reinforcing the view that the country’s economy is beginning to emerge from its worst-ever contraction brought on by the coronavirus pandemic.
The central bank released its quarterly Sakura report amid signs of pickup in exports and production. Of the nine regions, only Shikoku saw the assessment maintained from the previous report in July.
Although economic conditions remained “severe,” many regions reported that their economies “had started to pick up or shown signs of a pickup” as economic activities resumed following suspensions due to the pandemic, the report said.
The BOJ had cut its views on all nine regions for the first and second quarters of the year when Japan was hit by a jump in coronavirus cases.
BOJ Gov. Haruhiko Kuroda told the bank’s branch managers earlier Thursday that the economy will likely be on a recovery path. But, he also said “the pace will be modest due to the lingering impact of global coronavirus infections.”
Corporate sentiment has improved as economic activity gradually resumed after the country was put under a state of emergency this spring.
The BOJ’s tankan survey released earlier this month showed that confidence among big manufacturers recovered in the three months through September from an 11-year low, though it remained deep in the negative column.
“We expect a modest rebound in auto-related exports,” a transport equipment company told the BOJ, according to the report. The company noted that a recovery in the Chinese market has been stronger than expected.
The export-reliant Japanese economy shrank a record 28.1 percent in the April-June period after consumer and corporate spending both took hits.
Exports slumped as the coronavirus pandemic prompted countries to enforce lockdown measures, stalling business activity.
To support households and boost domestic demand, the government earlier this year distributed ¥100,000 to each person.
Private consumption has been picking up or shown signs of a pickup in all nine regions, while labor market conditions and household incomes remain weak, the report said. Uncertainty over the spread of the virus has made companies cautious about stepping up investment.
Analysts have warned of an increase in pandemic-linked bankruptcies and further deterioration in employment conditions.
With its ultraeasy monetary policy maintained, the BOJ has launched a support plan aimed at encouraging commercial banks to extend loans to companies hit by the pandemic, and ensuring ample liquidity through purchases of corporate debt from lenders.
But Kuroda acknowledged that companies are facing financial difficulties despite the accommodative monetary policy, reiterating that the BOJ will take further easing steps if necessary.
Last month, the governor hinted at extending the emergency support program beyond the end of March.
The BOJ is scheduled to hold a two-day policy-setting meeting from Oct. 28.
The Sakura report — named after its cherry blossom-colored cover — is the Japanese equivalent of the U.S. Federal Reserve’s Beige Book and is released every three months following a meeting of the BOJ’s regional branch managers.