TOKYO - The Bank of Japan on Monday maintained its view that regional economies were expanding or recovering, but warned that more companies were feeling the pinch from the U.S.-China trade war.
In a quarterly report on regional Japan, the central bank kept intact its economic assessment of all nine areas as solid domestic demand offset some weak signs in exports and output. But it acknowledged heightening risks to the export-reliant economy.
Markets are watching for any change in the central bank's tone on the economy to gauge whether it could ease policy further as early as this month's rate review.
The BOJ in its report cut its assessment on factory output for two regions including the Kinki western Japan area - home to electronic giants such as Panasonic Corp - reflecting slowing global demand for capital goods and electronic parts.
"A somewhat increasing number of firms pointed to heightening uncertainties over the outlook for overseas economies and their impact, reflecting the U.S.-China trade friction," the BOJ said in the report issued after a meeting of the central bank's regional branch managers.
BOJ Governor Haruhiko Kuroda said the country's economy was expected to expand moderately as a trend and gradually push inflation towards the central bank's 2% target.
"The BOJ will make necessary policy adjustments to sustain the economy's momentum towards achieving its inflation target," he said in a speech to the regional branch managers.
Japan's economy expanded by an annualised 2.1% in the first quarter but many analysts predict growth will slow in the coming months as the U.S.-China tariff row hurts exports. A scheduled sales tax hike in October may also curb consumption, they warn.
The BOJ said most regions still saw capital expenditure increasing, suggesting the trade frictions have yet to prod companies to put off investment plans.
But data earlier on Monday showed core machinery orders, a leading indicator of corporate investment, fell by the most in eight months, casting doubt on the BOJ's view that solid domestic demand will keep the recovery intact.
"Semiconductor-related orders were falling since last summer but orders fell further from around May, as it became clear the U.S.-China trade friction will be prolonged," a machinery maker in western Japan was quoted as saying in the BOJ's report.