By Leika Kihara
TOKYO (Reuters) - The Bank of Japan raised its economic assessment for three of the country's nine regions and maintained its optimism on the remaining areas in a quarterly report, underscoring brighter prospects for the world's third-largest economy.
The upgrade reflected a pick-up in private consumption and demand from emerging Asian economies, suggesting that heightening expectations for a solid recovery will let the central bank hold off on expanding stimulus in coming months.
"Japan's economy continues to recover moderately as a trend and is likely to expand moderately ahead," BOJ Governor Haruhiko Kuroda told a quarterly meeting of the central bank's regional branch managers on Monday.
It was the first time in seven quarters that the BOJ has raised its assessment for three regions, indicating its growing conviction that Japan's recovery was gaining momentum.
The report will be among factors the bank's board will scrutinise at its Jan. 30-31 rate review.
The upgraded assessments for the eastern and northeastern Japan regions, where some big manufacturers have headquarters and factories, cited a pick-up in output of electronic parts as emerging market demand recovered.
The view on the Tokai central Japan region - home to Toyota Motor Corp (T:7203) - was revised up as its economy was "expanding moderately," with strength in factory output and capital expenditure.
"Output is increasing for a broad range of sectors" such as auto, electronic parts and construction machinery industries, Kimihiro Eto, the BOJ branch manager overseeing the Tokai region, told reporters.
STRONGER CONSUMPTION
All three regions that upgraded their assessments also offered a brighter view on private consumption than three months ago, as a recent stock market rally improved consumer sentiment.
"Luxury item sales rose as stock prices bounced up since November. We're seeing more positive signs (on consumption)," Eto said.
The optimism will likely reinforce a dominant market view the BOJ will hold off on expanding stimulus in coming months.
But some BOJ branch managers warned of risks to the outlook such as uncertainty over the policies Donald Trump, the incoming U.S. president, will pursue.
"Some companies hope that big tax cuts and infrastructure spending, if implemented, will stimulate U.S. growth. But others worry whether these will indeed happen .. and about his comments on trade protectionism," said Atsushi Miyanoya, head of the BOJ's branch overseeing the Kinki western Japan region.
Japan's growth has been subdued but exports and factory output have recently shown signs of life on a pick-up in emerging Asian demand.
Retail sales rose in November, suggesting a broader improvement as a tightening job market gradually pushes up wages.