The Bank of Japan said cost increases were spreading more broadly through regional economies as firms passed higher expenses to customers. Its October regional report upgraded the economic assessment for two of Japan’s nine regions and left seven unchanged. All nine continued to report moderate recovery or improvement, although some weakness remained. The report was released after the central bank’s quarterly meeting of regional branch managers.
Regional firms cited higher raw-material costs linked to the Middle East conflict, the weak yen and rising labour expenses. The BOJ said pass-through was spreading to businesses closer to consumers, with some raising prices more frequently. Strong demand related to artificial intelligence was supporting output of electronic goods, machinery and telecommunications infrastructure. The findings add regional evidence to the central bank’s assessment of inflation and activity.
TWO REGIONS RECEIVED STRONGER ECONOMIC ASSESSMENTS
The regional report compiles information gathered by the BOJ’s branches and local offices from businesses across Japan. The central bank upgraded two assessments from July while retaining the previous descriptions for the other seven. It said every region was recovering moderately, picking up or picking up moderately, with differences in pace and areas of weakness.
Artificial-intelligence investment featured in reports of stronger production and capital spending. Demand for data-centre and telecommunications equipment was benefiting some manufacturers and related suppliers. The BOJ nevertheless presented the regional picture as a measured recovery rather than an economy-wide acceleration.
PRICE PASS-THROUGH WILL INFORM THE OCTOBER MEETING
The cost evidence is relevant because the BOJ has been monitoring whether inflation is broadening beyond imported energy and raw materials. More frequent price increases by consumer-facing firms could affect the durability of underlying inflation. The report did not announce a policy-rate change or predetermine the next decision.
The BOJ’s policy board is scheduled to meet on 29 and 30 October. It will publish updated growth and inflation forecasts at that meeting, giving policymakers another basis for judging the strength of price pressures. The extent to which regional cost pass-through persists will be a concrete issue to watch alongside wages, demand and the yen.