The BoJ’s Regional Economic Report released today painted a mixed picture of recovery, with assessments for eight regions left unchanged and one downgraded. Most local economies were described as “recovering moderately” or “picking up” .

Businesses in some areas reported that they may scale back wage hikes if tariffs begin to bite into profits, a risk that could slow Japan’s nascent wage-led inflation. Still, several regions pointed to ongoing wage pressures from tight labor markets and rising living costs, suggesting that the underlying trend in income growth remains intact for now.

The survey also revealed continued commitment to capital investment, particularly in automation and IT-related projects, as firms seek efficiency gains. However, a number of companies plan to delay or reassess spending amid uncertainty over global demand and the evolving impact of tariffs.

Full BoJ Regional Economic Report here.

BoJ Governor Kazuo Ueda said in a speech today that Japan’s real interest rates remain “significantly low,” and if the Bank’s baseline scenario holds, policy rates will continue to rise. He highlighted that rising labor shortages and firmer medium- to long-term inflation expectations should eventually push underlying CPI toward 2% in the second half of the Bank’s forecast horizon.

Ueda acknowledged, however, that uncertainties remain significant. Chief among them are US economic developments, tariff impact on Japan, and food price inflation.

He warned that tariffs could hurt US firms’ profits and in turn slow employment and income growth — risks that may already be showing in weaker US job data. If firms pass on costs instead, higher consumer prices could sap private demand.

At home, the Tankan survey suggested resilience in services, where the tariff impact is limited, but profit projections for export-heavy industries such as autos showed steep declines.

Food prices are another area of concern. While much of the recent rise has been driven by temporary factors, Ueda cautioned that wage and distribution cost pass-through is increasingly evident. That raises the possibility of more persistent inflation in food.

Full speech of BoJ’s Ueda here.

BoJ Deputy Governor Shinichi Uchida highlighted resilience in Japan’s economy, pointing to positive corporate sentiment in the Tankan survey and improved manufacturer outlooks as trade uncertainty with the US has eased. He noted that despite tariff-related profit pressures for some firms, revenues remain elevated, capital expenditure is trending higher, and consumption is firm.

On inflation, Uchida said underlying price growth may stagnate in the near term but should re-accelerate gradually as expectations rise. This suggests the BoJ continues to see progress toward achieving its price stability goal, albeit at a measured pace.

Reaffirming the policy stance, Uchida said the BoJ will continue lifting rates if economic and price trends evolve as projected, while remaining data-dependent. He stressed that decisions will be guided by evidence, not pre-set commitments.