BOJ cautious on global growth

But he maintained the central bank’s view that while Japan’s economy remains under downward pressure, mainly on output, there are indications it is picking up.

In a sign that the recovery is broadening, the BOJ also raised its assessment for seven out of nine regional economies, with most areas showing a pickup in output and household spending.

“Japan’s economy will likely resume a moderate recovery as supply constraints ease further and output activity picks up,” Shirakawa said.

The BOJ is growing increasingly confident that Japan’s economy will recover from the devastation of the March 11 earthquake and tsunami by the end of this year as companies restore supply chains more quickly than expected.

Factory output in May jumped by the most in almost 60 years, while the central bank’s latest quarterly tankan survey showed that companies expect an improvement in business sentiment in coming months and plan to increase capital expenditure.

The BOJ is therefore expected to hold off on easing policy further at its rate review next week and to tone up its optimism on output and the economy, although it will strike a note of caution about signs of a global slowdown.

Some in the BOJ have become increasingly worried about softening global growth which, if prolonged, will hurt exports just when Japan is starting to shake off supply constraints in the autumn.