BOJ raises assessment of 5 out of 9 regional economies, but downside risks remain

The Bank of Japan (BOJ) on Thursday raised its assessment for five out of nine regional economies in Japan as industrial production and exports recover to pre-March quake levels. According to the central bank's quarterly report on Japan's regional economies known as the "Sakura Report," the economies of Hokkaido, Tohoku, Kanto-Koshinetsu, Tokai and Kyushu-Okinawa have seen ongoing improvements since the previous reporting period three months earlier.According to the report, the five regions said that their economies had been "picking up, aided mainly by the removal of supply-side constraints,'' meaning that the post-quake and tsunami supply chain disruptions that severely impaired production and exports in the weeks and months following the March disasters have been largely restored. Speaking at a quarterly meeting of BOJ branch managers, the central bank's chief Masaaki Shirakawa said that growth may be slow in the short-term but will be firm and will recovery in accordance with rising exports. "Overseas growth will slow for the time being but will be firm as a trend mainly in emerging economies," Shirakawa said at the manger's meeting Thursday. "Japan's economy will resume a moderate recovery as exports increase moderately as a trend, and as companies spend to restore plant and equipment damaged by the disaster," the BOJ governor said. The BOJ left its assessment largely unchanged for the four regions of Hokuriku, Kinki, Chugoku and Shikoku, who said that their economies had "continued to pick up as a trend, which was more or less unchanged from the assessment in the previous report. " The central bank's report did note however that ''a few regions reported that the effects of the slowdown in overseas economies had begun to be observed in some segments of their production activity.'' Coupled with this the BOJ is keenly aware of the downside risks of a persistently strong yen and how susceptible export-reliant Japan is to the health of overseas economies. "Exports and output are stalling or somewhat falling. The strong yen is playing some part in this but the effect is more from the overseas slowdown," Hideo Hayakawa, branch manager for Osaka, told reporters on Thursday. "There's clearly a sense that uncertainty over the outlook is broadening," Hayakawa said. Based on the latest report, the central bank will release a long-term view of Japan's overall economy next week and analysts believe that based on this the BOJ may downwardly revise its forecast for real economic growth in fiscal 2011 and 2012.