BOJ paints rosy picture of regional Japan, Trump uncertainty niggles

[TOKYO] The Bank of Japan has offered its most optimistic view on regional Japanese economies in nearly a decade, even as some firms warned that uncertainty over US President Donald Trump's trade policies could affect their capital expenditure plans.

BOJ Governor Haruhiko Kuroda reiterated the central bank's resolve to maintain its massive monetary stimulus, with inflation still distant from his ambitious 2 per cent target.

"Japan's economy continues to recover moderately as a trend. As for the outlook, it is expected to turn to a moderate expansion," Mr Kuroda said at a quarterly meeting of the central bank's regional branch managers on Monday.

In a report issued after the meeting, the BOJ maintained its rosy economic assessment for eight of Japan's nine regions, compared with three months ago, and revised up the assessment for one area.

Two regions, including the Tokai area home to auto giant Toyota Motor Corp, said their economies were "expanding moderately" - the first time in nine years the BOJ used such upbeat language for more than one region.

Many Japanese manufacturers were benefiting from strong overseas demand for electronic parts and semiconductor-making equipment, the report said, a sign Japan's economic recovery continues to rely heavily on exports.

Two regions offered a rosier view on private consumption than three months ago, as a tightening job market prompted some companies to raise wages, the report said.

Some firms complained that uncertainty over the new US administration's trade policies could affect business plans, though few said they already planned to curb domestic spending, said a BOJ official who briefed reporters on the survey.

"We postponed a plan to boost capacity at our plant in Mexico due to uncertainty over the new US administration's policies. But we don't plan to change our investment in Japan," a maker of metal products in eastern Japan said in the report.

"Given uncertainty over the global outlook, we postponed part of our capital expenditure plan for fiscal 2016," said a steelmaker in Osaka, western Japan.

Japan's economy is showing some signs of life as a rebound in overseas demand lifts exports and factory output, though slow wage growth continues to weigh on private consumption.

Mr Trump has threatened to change trade rules to make them more favourable for American jobs, undermining some Japanese exporters' confidence in their manufacturing plans and likely sales in the United States.

Some analysts say Mr Trump may attack the BOJ's ultra-loose monetary policy, characterising it as an attempt to keep the yen weak and give Japan's exports an unfair advantage.

The BOJ has argued its massive stimulus is aimed solely at beating deflation and does not directly target exchange rates.

Under a new policy framework launched in September last year, the BOJ now guides short-term interest rates at minus 0.1 per cent and the 10-year Japanese government bond yield around zero per cent through aggressive asset purchases.

REUTERS