BOJ raises economic assessment for Tohoku and Shikoku as tech demand remains strong

The Bank of Japan (BOJ) adjusted its economic outlook for two regions in its latest quarterly report, while keeping the assessment steady for the other seven. The regions, Tohoku and Shikoku, experienced positive changes in their economic assessments.

The central bank cited strong demand for artificial intelligence (AI) related products as a contributing factor to the region-specific improvements. This included semiconductor manufacturing equipment and electronic components. The report highlighted that the economy in all nine regions has been "picking up moderately," "recovering moderately," or "on a moderate recovery trend," with some regions experiencing slight weakness.

For the Tohoku region, the BOJ upgraded its economic assessment from "picking up" to "recovering moderately." Similarly, Shikoku saw its economic view raised from "picking up moderately" to "picking up." The changes reflect the robustness of demand in these regions, with an electrical equipment manufacturer in Osaka reporting that AI-related demand is increasing faster than anticipated and is expected to continue for the next three years.

Resilient private consumption, supported by improvements in real income, was a notable feature across the regions. High-priced goods, such as luxury watches and jewelry, maintained strong sales, particularly in Shizuoka Prefecture. Despite rising stock prices, there were indications that sales to affluent consumers remained steady.

However, adverse weather conditions, including typhoons and heavy rain, were reported to negatively impact consumption in certain areas. Kenji Fujita, a manager at the BOJ's Osaka branch, noted that while small and medium-sized enterprises have generally been able to pass on higher costs to their business partners, the process is uneven and still in the early stages of implementation.

The BOJ's interest rate hikes have had mixed reactions from companies. Some have delayed capital investments, while many have proceeded with necessary investments, including labor-saving measures. Overall, the BOJ's report paints a cautiously optimistic picture of the Japanese economy, with specific regions showing signs of recovery and growth, particularly driven by tech demand.