BOJ Economic View: Ideas Later.

BOJ upgrades economic view of 2 regions on strong AI demand

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TOKYO (Kyodo) -- The Bank of Japan on Thursday upgraded its assessment for two of the nation's nine regional economies as demand for artificial intelligence-related infrastructure and products increased.

In its quarterly Sakura report, the central bank lifted the assessments of the Tohoku region in the country's northeast and the western island of Shikoku. It said all areas were either "recovering moderately," "picking up," or "picking up moderately," although weaknesses could be seen in some regions, in part due to Middle East tensions.

The report cited views from its regional offices representing areas including Tokai, where Toyota Motor Corp. and many auto parts suppliers are based, Tokyo, and Kinki, which includes Osaka and Kyoto, compiled ahead of a branch managers' meeting earlier Thursday.

Supply disruptions caused by the effective closure of the Strait of Hormuz amid the U.S.-Israeli war on Iran since late February have eased as companies sought alternative sources and routes, the report said.

Private consumption has remained firm as bonus increases spurred purchases of luxury items. Meanwhile, accommodation firms saw solid demand despite a fall in the number of inbound Chinese tourists on the back of Sino-Japanese tensions, as people flocked to facilities during the summer holidays and were incentivized by promotional discounts.

On wage hikes, which the BOJ views as key to deciding whether to raise interest rates, companies said they intend to keep raising pay even if expenses eat into profits, with others expecting similar wage increases for fiscal 2027.

Companies continued to hike product prices as Middle East tensions led to higher energy and raw material costs while demand remained solid.

"We are closely monitoring whether consumers will become more frugal-minded as firms pass costs on to customers on the back of the situation in the Middle East," Kenji Fujita, general manager of the Osaka Branch, said during a press conference.

The BOJ raised its key interest rate to a 31-year high of 1.25 percent last month and signaled that more hikes may come to keep inflation in check.

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.

Article source:    https://mainichi.jp/english/articles/20261008/p2g/00m/0bu/042000c