By Leika Kihara
TOKYO (Reuters) - The Bank of Japan maintained its view the world's third-largest economy is recovering but offered a bleaker take on exports and output, nodding to a recent batch of soft data that dashed hopes overseas shipments will pick up in time to offset the pain from a sales tax hike in April.
BOJ Governor remained upbeat about the outlook for the economy, underscoring the central bank's conviction that no fresh stimulus is required even though data next week is expected to show the biggest contraction in economic activity since the global financial crisis.
"Japan's economy is likely to continue recovering moderately with the effect (of an April sales tax increase) seen gradually subsiding," Kuroda told a news conference.
"Exports and output have been weakening," he said. "But a positive economic cycle remains in place as job and income conditions steadily improve."
The BOJ downgraded its assessment of exports - which it has been counting on to support the economy as the tax hike crimps consumption. "Exports have shown some weakness," the bank said, revising last month's assessment they were moving sideways.
The central bank also acknowledged "some weakness" in industrial output.
"The BOJ does not need to change its expectations that inflation will accelerate again due to strong domestic demand," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. "However, risks from overseas have risen, and this puts the BOJ in a more uncomfortable position."
As widely expected, the BOJ maintained its policy framework, under which it has pledged to increase base money by 60-70 trillion yen ($580-690 billion) per year through aggressive asset purchases to reflate the moribund economy and drive inflation toward 2 percent sometime next year.
Exports unexpectedly fell in June for a second straight month and output plunged at the fastest pace since the March 2011 earthquake, casting doubt on the BOJ's view the economy will fairly quickly ride out the pain from the April tax hike.
A private factory survey showed new export orders grew in July for the first time in four months, although only modestly.
Adding to the gloom, Japan's Nikkei share average suffered its biggest fall in five months on Friday on worries that escalating tensions between Russia and the West could hurt global growth.
GROWTH DOUBTS
While the BOJ already expects Japan's economy to shrink in the second quarter due to the tax hike effect, the contraction may prove to be bigger - and the rebound more modest - than projected given the delay in an export pick-up and weak household spending, analysts say.
Some in the nine-member board, such as Koji Ishida, are more cautious about the outlook than Kuroda. Ishida warned last month that structural issues may further delay an export rebound.
Heightening worries for policymakers, wages were soft in June with only a modest rise seen in bonuses and regular pay despite Prime Minister Shinzo Abe's calls for companies to raise base salaries so consumers can keep spending.
The closely-watched April-June gross domestic product data, due out next week, is expected to show Japan's economy shrank an annualized 7.1 percent due to the tax hike pain, according to a Reuters poll, the biggest contraction since the first quarter of 2009 amid the doldrums of the global financial crisis.
Some private-sector analysts say such a big contraction in the second-quarter may mean economic growth in the current business year will far undershoot the BOJ's current projection of an 1.0 percent increase.
"We already know the April-June contraction will be quite big. What's more worrying is the overall weakness in June data, which suggests the third-quarter rebound may be moderate," said Hideo Hayakawa, a former top BOJ top economist and now senior executive fellow of private think tank Fujitsu Research Institute.
"But I don't think Kuroda minds even if growth remains subdued, as long as inflation keeps accelerating," he said.
However, the weak GDP data, as well as sluggish wage growth, could also heighten private economists' scepticism that the BOJ will be able to meet its target of pushing inflation to 2 percent sometime next year without further stimulus.
(1 US dollar = 102.1900 Japanese yen)
(Additional reporting by Tetsushi Kajimoto and Stanley White; Editing by Kim Coghill, Shri Navaratnam and William Mallard)
