By Leika Kihara
TOKYO, Oct 8 (Reuters) - The Bank of Japan said price increases driven by higher raw material costs were spreading to consumer goods with some firms hiking prices more frequently than in the past, signaling its concern over broadening inflationary pressure.
The central bank also offered an upbeat view on the economic outlook, saying brisk AI-related demand was increasing domestic output for electronic goods, machinery and telecommunication infrastructure.
"Many regions saw firms passing
on a broad range of rising costs," including higher raw material costs from the Middle East conflict and the weak yen, as well as increasing labour costs, the BOJ said in a statement released after a quarterly meeting of its regional branch managers on Thursday.
The assessment, which will be among factors the board will scrutinise at its policy meeting this month, reinforces market expectations the BOJ will raise interest rates again this year.
The BOJ raised its economic assessment for two of the country's nine regions and maintained its view for the remaining areas, saying they were all recovering moderately.
Corporate spending appetite remained strong mainly for construction of data centres and investment in digitalisation, while the hit to businesses from the Middle East conflict was easing, the statement said.
The branch managers also pointed to broadening price pressures. Given volatile moves in input costs, some firms are raising prices more frequently than in the past, the statement said.
"Efforts to pass-through rising costs are spreading to firms close to consumers," leading to more companies raising prices, the statement said.
But some firms were also forgoing price increases or seeking to lure consumers with discounts, as households remain cautious of increasing spending, it said.
While many regions saw firms offering strong wage gains, in some areas firms said they may struggle to hike workers' pay as their margins are being squeezed by rising raw material costs, the statement said.
The BOJ raised its key rate to a 31-year high last month, with its governor signalling the central bank had entered a phase focused on preventing underlying inflation from overshooting its target, raising the prospect of tighter policy.
At the October 29-30 meeting, the BOJ will release fresh quarterly growth and inflation forecasts that will be closely watched by markets for clues on the next rate-hike timing.
(Reporting by Leika Kihara; Editing by Jacqueline Wong and Muralikumar Anantharaman)
