TOKYO (Reuters) - Most Japanese regional economies continue to recover as the pain from a sales tax hike in April starts to ease, the Bank of Japan said in a quarterly report, maintaining its optimism on the outlook despite growing signs growth may be losing momentum.
Some regions saw the tax-hike pain moderated by a steady increase in foreign visitors thanks in part to a weak yen, which has recently drawn complaints from the business sector for inflating the cost of imports, the central bank said.
BOJ Governor Haruhiko Kuroda stuck to his upbeat tone in a speech to a meeting of the central bank’s regional branch managers, saying that the economy is set to recover moderately as a trend although there are some weaknesses in factory output.
“As for the outlook, the economy will continue to recover moderately as a trend, with the effect (of the sales tax hike likely to gradually subside,” he said on Monday.
In a quarterly report on the regional economy, the BOJ maintained its assessment for eight of the country’s nine regions to say they continue to recover moderately as a trend.
Only the northeastern Tohoku region cut its assessment from the previous report issued in July.
“Domestic demand is firm as job and income conditions steadily improve,” the October report said, adding that most regions are seeing private consumption emerge from the pain inflicted by the April tax hike.
The regional economic report will be among factors the BOJ will scrutinize at its policy-setting meeting on Oct. 31. At the meeting, the BOJ will also release fresh long-term economic and price projections that serve as a benchmark for future monetary policy decisions.
The BOJ has stood pat on monetary policy since launching an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to achieve its 2 percent inflation target in roughly two years.
Recent weak data has cast a shadow over the BOJ’s optimism that the economy is on course for a moderate recovery. Factory output slumped as companies were saddled with a huge pile of inventory due to sluggish demand after the April tax increase.
A recent Reuters poll showed Japanese business confidence slipped to its lowest in 1-1/2 years in October, a further sign Tokyo may be forced to offer fresh policy support to recharge an economy ailing from the tax-hike pain.
Such gloomy data has heightened public criticism that the benefits of Prime Minister Shinzo Abe’s “Abenomics” stimulus policies have yet to reach regional areas of the country.
But the BOJ’s branch managers were generally upbeat on their regions’ economies. Hidehiko Sogano, who oversees the Hokkaido northernmost prefecture, said many hotels are packed even after charging 10-20 percent more for their rooms due partly to a steady stream of foreign visitors.
“Some hotels undergo renovations and raise room charges, then see the more expensive rooms fully booked. That makes them feel the investment was worthwhile,” Sogano told a briefing.
The number of foreign visitors to Japan surged 26 percent in January-August from the same period last year, according to a government survey.
The Kinki western Japan region also saw the weak yen attract more foreign tourists which, coupled with rising jobs and wages, helped offset the pain from the tax hike on consumer spending.
The yen’s fall underpinned exports, allowing companies to maintain their bullish capital spending plans, said Osaka branch manager Atsushi Miyanoya, who oversees the Kinki region, home to electronic giants such as Panasonic Corp (6752.T).
“Taken together, the benefits of the weak yen outweigh the costs in the Kinki region,” Miyanoya said.
Some branch managers, however, warned that recent volatility in the yen was a potential risk to the outlook as it makes it harder for companies to make business decisions.
“Many companies feel that rapid currency moves, be it a yen rise or yen fall, are undesirable,” said Nagoya branch head Toru Umemori, whose region is home to auto giant Toyota Motor Corp (7203.T).
Reporting by Leika Kihara; Editing by Chris Gallagher and Jacqueline Wong