Bank of Japan deputy governor warns of risks, signals easy policy bias

[OKAYAMA, Japan] The Bank of Japan will focus on risks to the economy as uncertainty over US-China trade talks and soft global demand cloud the outlook, its deputy governor said, stressing the bank's resolve to expand stimulus if the recovery is threatened.

Masayoshi Amamiya, a career central banker who is one of the BOJ's two deputy governors, said the global economy was showing some bright signs as demand for semi-conductors recovered and stimulus measures taken by some countries propped up growth.

But the BOJ would not let its guard down against overseas risks that could further delay a pick-up in growth and hurt already worsening business sentiment, he said on Thursday.

"At present, the BOJ believes that downside risks to economic activity and prices, mainly those regarding global developments, require the most attention," Mr Amamiya said in a speech to business leaders in Okayama, western Japan.

"If there's a greater possibility that Japan could lose momentum toward achieving our price target, we won't hesitate to take additional easing measures."

Mr Amamiya also offered a slightly bleaker view on domestic demand than before, pointing to the chance capital expenditure and private consumption may briefly weaken due to the hit from the global slowdown and October's sales tax hike.

"Exports and output will stay weak for the time being," Mr Amamiya said. "Domestic demand may also slow temporarily ... though in the long-term, it will stay resilient," he said.

The BOJ kept monetary policy steady in October but offered the strongest sign yet on the chance of cutting interest rates if risks threaten the economy's path toward achieving its elusive 2 per cent inflation target.

Despite mounting overseas risks, the central bank has justified standing pat on the view that robust domestic demand will cushion the hit to exports from external headwinds.

That view has been thrown into doubt by a slew of weak data on consumption and capital spending, though many analysts expect the BOJ to hold off on easing at next week's rate review.

BOJ Governor Haruhiko Kuroda said last month he saw no need to expand stimulus now, underscoring the bank's preference to save its dwindling ammunition in case the economy takes a bigger hit from heightening overseas risks.

REUTERS