Oct. 19 (Bloomberg) -- The Bank of Japan said the economy is improving in all of the country’s nine areas as the nation emerges from its worst postwar recession.

“Signs of picking up had appeared throughout the economy, although regional differences remained,” the central bank said in its quarterly regional report in Tokyo today. Economic conditions remained “severe” in five areas, it said.

Bank of Japan policy makers last week raised their evaluation of the economy for a second month, saying companies cut spending at a slower pace and their access to private funding improved. Governor Masaaki Shirakawa said today that the economy has started to “pick up,” while adding that domestic demand will remain “weak” and the policy board is concerned about risks to growth and prices.

“There remains a risk that Japan’s production will start to lose momentum during the fourth quarter,” said Yasunari Ueno, chief market economist at Mizuno Securities Co. in Tokyo. “That would fuel concern that the economy will head toward another downturn.”

The Tokai region in central Japan, home to Toyota Motor Corp., received the best assessment, with the bank saying the local economy “has started to pick up.” Kanto, which encompasses Tokyo, is “bottoming out and turning upward,” the central bank said in the report, which is akin to the U.S. Federal Reserve’s Beige Book. It said the economies of Hokkaido, Tohoku, Hokuriku, Kinki and Shikoku were still “in a severe situation.”

Osaka Branch

In Osaka, policy stimulus helped industrial production recover since early this year, though output may start to slow this month or in November, said Hideo Hayakawa, head of the central bank’s branch in the city, Japan’s second-largest metropolis.

Hayakawa said companies remain reluctant to invest in plant and equipment. Even so, “there are few business managers who are concerned about a second-dip in the economy,” he said. Osaka is home to electronics companies including Panasonic Corp. and Sharp Corp.

A stronger yen is prompting some businesses to consider shifting factories abroad, he said, while adding that they aren’t calling for the government to artificially weaken the currency because that would fuel global trade protectionism.

The yen has gained 9.5 percent against the dollar in the past six months, eroding exporters’ repatriated profits and making their products more expensive abroad.

A thaw in credit markets has at least made it easier for companies to raise funds.

Emergency Credit

Some central bank board members said last month that the need for their emergency credit-easing measures was decreasing, according to minutes of the Sept. 16-17 policy meeting released today. The remarks reinforced economists’ expectations that the bank will let its programs of purchasing corporate debt from lenders expire at the end of the year.

Since lowering the benchmark interest rate to 0.1 percent in December, the central bank started buying commercial paper and corporate bonds from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the three plans to Dec. 31 in July.

Shirakawa said last week that his board will persist with its policy of holding rates “very low” and maintain a “very accommodative” stance.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: October 19, 2009 04:00 EDT