By Leika Kihara

TOKYO (Reuters) -The Bank of Japan cut its economic assessment for seven of the country's nine regions on Thursday, but said the economies were mostly picking up or recovering gradually.

In a report on regional economies, the central bank said there was hope that smaller firms would hike wages by the same amount as last year or more, after bumper pay hikes were offered to employees by their bigger counterparts.

"With strong wage hikes sustained for two straight years, companies are changing their behaviour to cope with rising labour costs," such as boosting investment to streamline operations, the BOJ said.

The BOJ, however, warned of weak signs in consumption and output in some regions which were hit by sluggish winter clothing sales and auto production disruptions, underscoring the fragile nature of Japan's economic recovery.