[TOKYO] Bank of Japan board member Yutaka Harada said on Wednesday that consumer spending was likely to be flat or falling slightly, and not as weak as demand side data suggests.

Hourly wages have been rising in real terms, but increased household savings could be one reason why consumer spending is lacklustre, Mr Harada said in a speech to business leaders in Shimonoseki, southern Japan, according to a text posted on the central bank's web site.

Mr Harada reiterated the BOJ's position that it will not hesitate to ease policy again if risks to the outlook materialise, and there is lingering speculation the BOJ could do so as soon as this month in response to recent gains in the yen.

"Consumption remains weak, but the figures compiled in the consumption statistics tend to turn out weaker than the actual situation," Mr Harada said, according to the speech text.

"I am not denying that the economic recovery is still weak. That is why the BOJ... introduced quantitative easing with negative interest rates." The BOJ's next two-day policy meeting ends on Aug 28. Policymakers will likely debate the possibility of easing monetary policy further at this meeting, sources familiar with their thinking said.

If the central bank were to act, it would more likely increase asset purchases than cut interest rates, the sources said, as financial institutions are still scrambling to adjust to a negative rate policy deployed in January.

The BOJ's adoption of a massive asset-buying programme, dubbed "quantitative and qualitative easing," in April 2013 was intended to spur inflation expectations, and in turn, encourage households and firms to spend.

That has failed to materialise, forcing the central bank to add negative interest rates in January to accelerate inflation toward its ambitious 2 per cent target.

The move has failed to arrest a spike in the yen, which pushes down import costs. This is underpinning expectations the BOJ may top up stimulus in the coming months, some traders say.

Mr Harada said Japan's household spending survey, which is a measure of consumer spending from the demand side, has fallen more and fluctuated more wildly than the government's estimates of consumption from the supply side.

Data from the supply side shows consumption is falling at a more moderate pace, which may be a more accurate description of what is going on in the economy, he said.

Mr Harada emphasised that he still considers consumer spending to be lacklustre and he is worried by the fact that improvements in the labour market and wages have not raised consumer spending further.

REUTERS