But central bank governor, Haruhiko Kuroda, stressed his resolve to
maintain the massive stimulus program for as long as necessary to
sustainably achieve its 2 percent inflation target, reassuring
markets that an exit from the ultra-loose policy was still distant.
"The BOJ will examine upside and downside risks to the economy and
prices, and adjust monetary policy as needed," he told a meeting of
the BOJ's regional branch managers on Monday.
With Japan only halfway to meeting its price target, the BOJ is set
to keep its stimulus plan intact well into next year in contrast to
its U.S. and British counterparts, which are starting to telegraph
plans for rate hikes.
Still, market expectations of additional monetary easing by the BOJ
have diminished significantly on brightening prospects for the
world's third-largest economy.
In a quarterly report released after the meeting, all nine regions
stuck to their assessment that their economies continued to recover
moderately despite the pain from an increase in the sales tax to 8
percent from 5 percent in April.
Of the nine regions, four raised their assessment on capital
expenditure to say it was picking up or increasing further,
suggesting that the positive effect of premier Shinzo Abe's package
of stimulus programs and growth strategies -- dubbed "Abenomics --
is working its way through the economy.
"Companies that saw revenues increase are using the money to boost
capital expenditure," said Toru Umemori, head of the BOJ's branch in
Nagoya of the Tokai central Japan region -- home to auto giant
Toyota Motor Corp
"More firms are ramping up spending and that trend is broadening,"
he told a news conference.
The nine regions maintained their view from three months ago that
household spending was picking up or recovering moderately despite
the impact of the tax hike.
"Consumer spending is likely to stay firm as a trend with the effect
of the tax hike seen subsiding around the summer as wage and income
conditions improve," the report said, adding that the resilience in
consumption was encouraging more firms to raise prices of their
goods and services.
The BOJ has keep monetary policy steady since deploying an intense
burst of monetary stimulus in April last year, when it pledged to
double base money via aggressive asset purchases to accelerate
consumer inflation to 2 percent in roughly two years.
Kuroda has repeatedly stressed that Japan can ride out the tax hike
as the positive mood generated by "Abenomics" encourage companies to
boost wages and capital expenditure.
[to top of second column]
There are signs the outlook for exports, a soft spot in an otherwise
solid recovery, is picking up with electronic makers receiving
increased orders for smartphone parts, the BOJ's regional report
Underscoring the optimism, the BOJ's "tankan" survey showed last
week that business sentiment was poised to improve in the current
quarter to September and major firms planned to increase spending
more than expected this year.
Nominal wages in May also rose at the fastest annual pace since 2012
while the jobless rate hit 3.5 percent, the lowest in more than 16
years and a level the BOJ considers as near full employment.
While the increase in jobs available is positive for households,
there are initial signs a shrinking labor force in a rapidly aging
population may curb long-term economic growth.
Some retailers -- mainly mid-sized supermarket chains -- are
starting to worry that labor shortages may force them to hold off on
opening new outlets, said Atsushi Miyanoya, head of the BOJ's branch
in Osaka, western Japan.
"It's not something affecting companies now but some of them see
this as a future risk," he told a news conference.
Rising crude oil prices are also emerging as a headache for some
manufacturers, who say they do not favor a further weakening of the
yen as it would inflate already high energy costs, said Umemori of
the Nagoya branch.
The report will be among factors that the BOJ's board members will
scrutinize at their policy-setting meeting next week, when they are
set to keep monetary settings unchanged and conduct a quarterly
review of their long-term growth forecasts.
(Reporting by Leika Kihara; Editing by Edmund Klamann and Jacqueline
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