— Adds Osaka Branch Manager Remarks, Background From 16th Paragraph

TOKYO (MNI) – The Bank of Japan on Thursday upgraded its overview
of regional economies for July from three months ago, based on reports
from its branch managers who met here for a one-day quarterly meeting.

“Eight regions (out of the nine) judged that, compared with the
assessment in April 2010, their economic conditions had improved
further,” the BOJ said in its latest regional economic report.

“Many regions reported that amid the continued increase in
production, business fixed investment had either stopped decreasing or
had started picking up and the degree of severity in the employment and
income situation had eased,” it said.

The BOJ said most regions reported that private consumption had
either stopped decreasing or had started picking up.

“Meanwhile, many regions pointed either to the continued low level
of economic activity or to differences in developments among regions,
industries, or firms,” it added.

Eight out of the nine regions upgraded their regional economic
assessment for July, compared with three months ago.

Today’s report on the regional economic assessment is consistent
with the BOJ’s overall economic assessment that Japan’s economy is
showing further signs of a moderate recovery, induced by improvement in
overseas economic conditions.

The regional economic report said capital spending is picking up in
four regions, although remaining at a low level, while capex has stopped
declining in four other regions.

Five regions reported that private consumption as a whole was
picking up, showing signs of picking up or the decline had been coming
to a halt, because of severity in the employment and income situation
had eased somewhat and because policy effects had continued, said the
BOJ.

Production either increased or picked up in all regions, the latest
report said.

It also noted that “four regions reported that the pace of increase
in production had accelerated mainly due to the improvement in overseas
economic conditions.”

“The employment and income situation remained severe, but many
regions reported that the degree of severity had shown signs of easing,”
it said.

Managers from the BOJ’s 32 domestic branches and two general
managers from the U.S. and Europe gathered to discuss economic and
financial conditions at the bank’s head office.

At the opening of the meeting, BOJ Governor Masaaki Shirakawa said
global financial and capital markets are unstable due to continuing
concerns about sovereign debt, calling for a close watch.

“The recovery in industrialized economies remains moderate while
the growth among emerging and commodity-exporting countries remains
strong,” he said.

Meanwhile, BOJ Osaka branch manager Hideo Hayakawa, who is also
one of the six executive directors supporting the governor, told
reporters that his western commercial region raised its economic
assessment from three months ago.

“Both exports and production are on a steady recovery trend thanks
to the robust exports to Asian and emerging countries,” Hayakawa said,
adding that both exports and output are likely to continue expanding.

He added that the recovery in capital spending is stronger than he
expected six months ago, and that corporate profits have risen, thanks
to higher exports and production.

But he also said companies in his region appear to be hurt by the
strong yen and high material prices but the impact has not been serious
enough to cause their profits to fall below cost.

Hayakawa also noted that favorable effects from the corporate
sector haven’t fully filtered through to the labor market and thus that
it is unlikely that private consumption will rise steadily.

At its next policy-setting meeting on July 14-15, the BOJ board is
widely expected to keep the target for the overnight lending rate among
commercial banks at 0.1%.

Board members are likely to raise their economic growth forecasts
for the current fiscal year in an update to their projections provided
in April.

The results of the BOJ’s Tankan business survey for June and
today’s regional economic report underscored the BOJ’s view that Japan’s
economy continues improving.

BOJ officials are closely watching whether the improvement in the
corporate sector will filter through to the household sector that has
been hit by earlier job and wage cuts, although the degree of their
severity has eased somewhat.

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

[TOPICS: M$J$$$,M$A$$$,MMJBJ$,MAJDS$]