BoJ Keeps Cautiously Upbeat Economic View, Warns of Wage Uncertainty

• The Bank of Japan maintained on Monday its cautiously optimistic view on the economic outlook. Still, it 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 Japan's regional economies, the central bank retained its assessment for eight areas, saying 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, noted.
• The assessment will be among the 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 and 30. BoJ Governor Kazuo Ueda recently said he wanted to study more data to judge if firms can weather the hit from U.S. tariffs and keep hiking wages and capital spending. 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 orders related to artificial intelligence (AI) underpinning their economies. Many companies planned to keep increasing capital expenditure to streamline operations and meet rising information technology-related demand, though some planned to put off or review spending plans due to uncertainty over the impact of U.S. tariffs.
• The BoJ exited its massive, decade-long stimulus last year and raised short-term rates to 0.5% in January on the view that Japan was on the cusp of durably achieving its 2% inflation target. With inflation staying above 2% for well over three years, the BoJ has signalled its readiness to keep hiking rates.

(Sources: Reuters)