BOJ sticks to upbeat view on regional Japan despite curbs to combat pandemic

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan raised its assessment for three of the country's nine regions and described most local economies as picking up, offering a sanguine view even as new measures to contain the coronavirus cloud the outlook.

In a quarterly report on regional economies, the BOJ also upgraded its assessment on factory output for all nine areas for the first time since 2009, a sign robust demand for goods was offsetting some of the pain from weak service-related spending.

"While conditions are severe due to the impact from the pandemic, many regions are seeing their economies pick up," the BOJ said in the report.

The upbeat view reinforces market expectations the BOJ will hold off expanding stimulus at next week's rate review.

The BOJ revised up its view for three areas from October, and maintained its assessment for five regions including the Tokyo area and the "Kinki" western region - both targets of state of emergency measures rolled out this month.

Machinery makers benefited from firm overseas demand, while some retailers saw grocery sales rise as people spent more time at home, the report showed.

Tourism firms complained of surging cancellations after the government terminated a discount campaign for domestic travel.

The report will be among factors the BOJ will scrutinise in its quarterly growth review at the Jan. 20-21 policy meeting.

Sources have told Reuters the BOJ is likely to slightly revise up its economic forecast for the next fiscal year on hopes the government's stimulus package will moderate the pain from state of emergency measures to combat COVID-19.

(Reporting by Leika Kihara; Editing by Chris Gallagher and Sam Holmes)