— Adds Comments From Osaka Branch Manager At Bottom

TOKYO (MNI) – The Bank of Japan said on Thursday that five out of
the nine regions in Japan have upgraded their views from July while four
regions left their assessment unchanged.

The finding in the BOJ’s quarterly report on regional economies
confirmed that the economy has been improving on the recovery of
industrial production and exports to pre-March disaster levels.

But it also showed that Japan continues to face downside risks
triggered by the strong yen, slowing global growth and concern about
ripple-effects of the European sovereign debt crisis.

“Compared with the last assessment in July 2011, five regions
(Hokkaido, Tohoku, Kanto-Koshinetsu, Tokai and Kyushu-Okinawa) reported
that their economies had been picking up, aided mainly by the removal of
supply-side constraints,” the BOJ said.

“Four regions (Hokuriku, Kinki, Chugoku and Shikoku) reported that
their economies had continued to pick up as a trend, which was more or
less unchanged from the assessment in the previous report.”

It also said, “A few regions, meanwhile, reported that the pace of
the pick-up varied among areas, industries and sizes of business.”

The seven regions reported that capital investment was picking up
or increasing.

“Many regions reported that improvement in business sentiment,
while some regions reported concern over the effects of the appreciation
of the yen,” the BOJ said.

Six regions reported the consumption is picking up or increasing
while many regions said production is increasing or picking up.

“Meanwhile, a few regions reported that the effects of the slowdown
in overseas economies had begun to be observed in some segments,” said
the BOJ.

Many regions noted that jobs and income conditions remained severe
but that improvement had been observed.

Managers from the BOJ’s 32 domestic branches and two general
managers from the U.S. and Europe gathered here for a one-day quarterly
meeting to discuss economic and financial conditions.

In his opening remarks at the meeting, BOJ Governor Masaaki
Shirakawa said that the bank needs to watch for possible consequences of
the European sovereign debt crisis and the U.S. balance-sheet
adjustments on Japan’s export-led economic recovery.

BOJ Osaka branch manager Hideo Hayakawa, who is also one of the six
executive directors supporting the governor, told reporters that the
impact of the slowdown in overseas economies and the strong yen are
affecting businesses in Osaka and other western Japanese cities.

“The impact of the slowdown in overseas economies has emerged since
the effects of the earthquake disaster faded in the summer,” Hayakawa
said.

As for his region, he said there has been a higher sense of
uncertainty and an economic slowdown recently.

He also noted that exports and production of general and electric
machines are hitting peaks as the global economy is showing signs of a
slowdown and the yen remains relatively strong.

On the other hand, he said, “Domestic demand isn’t so bad and they
(company executives) are looking at ripple-effects of reconstruction
measures.”

“It is clear that overseas economies are slowing. But if
inflationary pressures eased off (in emerging economies), it would help
accelerate Asia’s economic recovery,” he said.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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