The Bank of Japan (BOJ) has retained its positive assessments for all nine regional economies in its latest quarterly Sakura report, despite acknowledging concerns stemming from the Middle East conflict and surges in crude oil prices, which have increased raw material and energy costs and raised worries about the economic outlook [1]. According to the report, all regions are either 'recovering moderately,' 'picking up,' or 'picking up moderately,' supported by robust global demand for artificial intelligence-related products and services. These assessments remain unchanged from January [1].
The BOJ highlighted that the Middle East situation has prompted some businesses to adjust their output and expressed concerns about reduced procurement of raw materials potentially affecting entire supply chains [1]. The central bank also noted that both large and small to medium-sized companies intend to offer high levels of pay hikes for the fiscal year starting April, comparable to the previous year, in order to secure labor [1].
The nine regions covered include the Tokyo area, Tokai (home to Toyota Motor Corp), and the Kinki region (including Osaka and Kyoto) [1]. The BOJ's Tankan survey for March indicated improved confidence among big manufacturers for the fourth consecutive quarter, although concerns remain about the ongoing impact of the Middle East situation [1].
The BOJ raised its key interest rate to a 30-year high of 0.75 percent in December and kept it unchanged in March, as it continues to monitor the effects of the U.S.-Israeli war against Iran on Japan's economy and inflation. Market views are growing that the bank may consider raising the key policy rate further to address the risk of accelerating inflation due to rising crude oil prices and a weak yen [1].
CONCLUSION
The BOJ's decision to maintain positive regional economic assessments, despite external risks, signals cautious optimism. However, ongoing concerns about supply chain disruptions and inflationary pressures from the Middle East conflict and rising oil prices could influence future policy decisions. Market participants are closely watching for potential rate hikes as the BOJ evaluates these risks.