The Bank of Japan may slightly raise its assessment of overseas economies on Friday, people familiar with the bank's thinking said, a sign that the bank remains confident that sluggish exports will pick up and help Japan's economy achieve a sustained recovery.
Robust U.S. jobs data and rising Wall Street stocks have heightened confidence within the BOJ that the world's largest economy has exited a soft patch blamed largely on severe winter weather, said the sources, who asked not to be named.
"External risks have subsided somewhat," one of the sources said on condition of anonymity. Another source expressed a similar view.
BOJ Governor Haruhiko Kuroda has recently been upbeat about progress in escaping deflation and achieving his 2 percent price target. But the BOJ has been notably wrong about exports.
The central bank has pushed back the expected timing of a pickup in exports by several months in its assessments.
Receding geopolitical risks from Ukraine, rises in China's May exports and a surge in U.S. imports - suggesting U.S. consumers are buying more goods from emerging Asia - all added to the central bank's optimism over the outlook for the global economy.
This may prompt the BOJ to slightly improve its assessment on overseas economies at a review during its two-day policy meeting starting on Thursday, the sources said.
The assessment could be subject to change, however, as some board members remain cautious about the overseas outlook largely because of continued weakness in emerging Asian economies that are among Japan's key export destinations.
Last month, the central bank said overseas economies, mainly advanced nations, are "starting to recover, although lackluster performances are seen in some areas," suggesting that sluggish emerging Asian growth remained a concern.
Despite the optimism on overseas growth, the BOJ is set to maintain its assessment that exports are "more or less flat" since there has been no clear signs of a pick-up.
Still, central bank officials hope improvements in overseas economies will soon lead to increased exports, which have been one of the few soft spots in an otherwise robust economy.
With domestic demand holding up, the BOJ is increasingly confident that the economy is weathering a recent tax increase and on course to exit years of deflation.
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