By Leika Kihara
TOKYO, Jan 8 (Reuters) - The Bank of Japan said on Thursday the country's regional economies were recovering gradually and many firms saw the need to continue raising wages, signalling its optimism over the outlook that could justify raising still-low interest rates further.
In a meeting of its regional branch managers, the central bank maintained its economic assessment for all nine regions compared with three months ago, saying they were picking up or recovering gradually.
In a summary
of surveys by the regional branches, the BOJ also said many firms saw the need to raise wages in fiscal 2026 at around the same pace as 2025, reflecting high corporate profits and a tight labour market.
Some regions, however, said smaller firms were fretting that they could struggle to raise wages in fiscal 2026 as much as in 2025, the summary showed.
Many regions saw companies continuing to pass on higher input, labour and distribution costs through price hikes with some saying they were considering raising prices to incorporate higher costs from recent yen declines, the summary showed.
The assessment underscores the BOJ's growing conviction that the Japanese economy is weathering the hit from higher U.S. tariffs, and seeing a cycle of rising wages and inflation that would justify further rate hikes.
"While some regions said exports and output were weakening due to the impact of U.S. tariffs and intensifying competition from Asian companies, others said firms were enjoying solid orders reflecting increasing global demand mainly for artificial intelligence-related goods," the summary said.
The information from the BOJ's regional branches will be taken into account when the board reviews its quarterly growth and inflation outlook at its next policy meeting on January 22-23. Many analysts expect the central bank to keep rates steady this month.
Many regions said the impact on domestic demand from China's restrictions on travel to Japan following a fallout over comments about Taiwan had been limited, though some firms were worried the negative impact could broaden, the summary showed.
The BOJ raised its policy rate to a 30-year high of 0.75% from 0.5% last month, taking another landmark step in ending decades of huge monetary support and near-zero borrowing costs.
Despite the move, Japan's real borrowing costs remain deeply negative with consumer inflation exceeding the BOJ's 2% target for nearly four years. A summary of opinions at the December meeting showed some board members fretting about the inflationary impact from a weak yen, which pushes up the cost of imports.
(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and Lincoln Feast.)
