UPDATE 2-BOJ upbeat on regional economies, reassures easy policy to stay

Mon Jul 7, 2014 5:47am EDT

* Japan economy continues to recover moderately - Kuroda
    * Adds BOJ to keep QE for as long as needed to meet target
    * BOJ keeps upbeat view for all of Japan's 9 regions
    * BOJ report shows 4 of 9 regions revise up view on capex
    * Some retailers say labour shortages may affect business
plans

 (Adds BOJ regional report)
    By Leika Kihara
    TOKYO, July 7 (Reuters) - The Bank of Japan kept its upbeat
assessment for all of the country's nine regions, saying a
moderate recovery was taking hold and bolstering views the
economy is on track to meet the central bank's price target
without more monetary stimulus.
    But central bank governor, Haruhiko Kuroda, stressed his
resolve to maintain the massive stimulus programme for as long
as necessary to sustainably achieve its 2 percent inflation
target, reassuring markets that an exit from the ultra-loose
policy was still distant.
    "The BOJ will examine upside and downside risks to the
economy and prices, and adjust monetary policy as needed," he
told a meeting of the BOJ's regional branch managers on Monday.
    With Japan only halfway to meeting its price target, the BOJ
is set to keep its stimulus plan intact well into next year in
contrast to its U.S. and British counterparts, which are
starting to telegraph plans for rate hikes. 
    Still, market expectations of additional monetary easing by
the BOJ have diminished significantly on brightening prospects
for the world's third-largest economy.
    In a quarterly report released after the meeting, all nine
regions stuck to their assessment that their economies continued
to recover moderately despite the pain from an increase in the
sales tax to 8 percent from 5 percent in April.
    Of the nine regions, four raised their assessment on capital
expenditure to say it was picking up or increasing further,
suggesting that the positive effect of premier Shinzo Abe's
package of stimulus programmes and growth strategies -- dubbed
"Abenomics -- is working its way through the economy.
    "Companies that saw revenues increase are using the money to
boost capital expenditure," said Toru Umemori, head of the BOJ's
branch in Nagoya of the Tokai central Japan region -- home to
auto giant Toyota Motor Corp 
    "More firms are ramping up spending and that trend is
broadening," he told a news conference.
    The nine regions maintained their view from three months ago
that household spending was picking up or recovering moderately
despite the impact of the tax hike.
    "Consumer spending is likely to stay firm as a trend with
the effect of the tax hike seen subsiding around the summer as
wage and income conditions improve," the report said, adding
that the resilience in consumption was encouraging more firms to
raise prices of their goods and services.
    
    SUPPLY CONSTRAINTS
    The BOJ has keep monetary policy steady since deploying an
intense burst of monetary stimulus in April last year, when it
pledged to double base money via aggressive asset purchases to
accelerate consumer inflation to 2 percent in roughly two years.
    Kuroda has repeatedly stressed that Japan can ride out the
tax hike as the positive mood generated by "Abenomics" encourage
companies to boost wages and capital expenditure.
    There are signs the outlook for exports, a soft spot in an
otherwise solid recovery, is picking up with electronic makers
receiving increased orders for smartphone parts, the BOJ's
regional report said.
    Underscoring the optimism, the BOJ's "tankan" survey showed
last week that business sentiment was poised to improve in the
current quarter to September and major firms planned to increase
spending more than expected this year. 
    Nominal wages in May also rose at the fastest annual pace
since 2012 while the jobless rate hit 3.5 percent, the lowest in
more than 16 years and a level the BOJ considers as near full
employment.
    While the increase in jobs available is positive for
households, there are initial signs a shrinking labour force in
a rapidly ageing population may curb long-term economic growth.
    Some retailers -- mainly mid-sized supermarket chains -- are
starting to worry that labour shortages may force them to hold
off on opening new outlets, said Atsushi Miyanoya, head of the
BOJ's branch in Osaka, western Japan.
    "It's not something affecting companies now but some of them
see this as a future risk," he told a news conference.
    Rising crude oil prices are also emerging as a headache for
some manufacturers, who say they do not favour a further
weakening of the yen as it would inflate already high energy
costs, said Umemori of the Nagoya branch. 
    The report will be among factors that the BOJ's board
members will scrutinise at their policy-setting meeting next
week, when they are set to keep monetary settings unchanged and
conduct a quarterly review of their long-term growth forecasts.

 (Reporting by Leika Kihara; Editing by Edmund Klamann and
Jacqueline Wong)