The Bank of Japan maintained its upbeat view on most of the country's regional economies, adding to reassurances from its governor that the world's third-largest economy can ride out the pain from a sales tax hike without additional stimulus. Also on Thursday, a Reuters survey showed manufacturers were more confident about business conditions in April and saw a more moderate dip over the next three months, suggesting the damage from the tax hike may be less pronounced than thought.
The optimism may add to a growing consensus in financial markets that the central bank will hold off on easing policy until around July to spend more time scrutinising the impact from the April 1 tax hike on domestic consumption. In a quarterly report analysing nine regional sectors of Japan, the BoJ raised its assessment for one and left unchanged its view for the rest to say they are all recovering moderately. None of the regional assessments were revised down.
"Domestic demand has been firm, production has been rising moderately as a trend, while job markets and income conditions have been improving," according to the report compiled at a meeting of the central bank's regional branch managers. The report did mention some regions seeing declines in housing starts and sales of luxury items at department stores, in reaction to a boom in demand ahead of the April 1 tax hike.
Many private-sector analysts agree with the BoJ that economic growth will rebound in the July-September quarter after suffering a mild contraction in the current quarter as the tax hike cools household spending. The BoJ will hold its next policy review on April 30, when it will issue new long-term economic and price forecasts in its twice-yearly outlook report.