By Leika Kihara
TOKYO (Reuters) -The Bank of Japan on Monday maintained its cautiously optimistic view on the economic outlook but warned of nagging uncertainty over the impact of U.S. tariffs on corporate profits, suggesting its preference is to wait for more data before raising rates.
In a quarterly report on regional economies of Japan, the central bank retained its assessment for eight areas to say they were recovering moderately or picking up, and cut the assessment for one area.
But the BOJ’s regional branch managers pointed to lingering uncertainty over the tariff impact that was prodding some firms to put off spending plans, a summary of their meeting showed.
“Wage increases will likely continue as a trend due to structural labour shortages. But it’s hard to know what will happen in next year’s wage talks as the impact of tariffs on corporate profits will only start to show from now on,” Kazuhiro Masaki, the BOJ’s Osaka branch manager, told a news conference.
“At this stage, it’s hard to say when exactly we’ll have clearer knowledge on the impact of tariffs,” he added.
The assessment will be among factors the BOJ will take into account in deciding whether to raise interest rates, or keep them steady at 0.5%, at its next meeting on October 29-30.
BOJ Governor Kazuo Ueda has recently said he wanted to scrutinise more data to judge whether firms can weather the hit from U.S. tariffs, and keep hiking wages and capital spending.
“Some regions cited companies in their area as saying they might need to curb wage increases if U.S. tariffs lead to sharp declines in profits,” the BOJ said in the summary of discussions at a quarterly meeting of its regional branch managers.
But other regions saw companies projecting the need to keep raising wages because of labour shortages, increases in minimum wages and recent hikes in food costs, the summary said.
While U.S. tariffs were weighing on exports and outputs, some regions saw brisk demand for artificial intelligence (AI) related orders underpinning their economies, the summary said.
Many companies planned to continue increasing capital expenditures to streamline operations and meet rising information technology-related demand, though some planned to put off or review their spending plans on uncertainty over the impact of U.S. tariffs, it said.
The BOJ exited a decade-long, massive stimulus last year and raised interest rates to 0.5% in January on the view Japan was on the cusp of sustainably achieving its 2% inflation target.
Ueda has signalled the BOJ’s readiness to keep raising rates if the likelihood of the economy seeing steady inflation, driven by sustained wage gains and domestic demand, heightens.
(Reporting by Leika KiharaEditing by Chang-Ran Kim, Christian Schmollinger and Kim Coghill)
