The Bank of Japan (BOJ) will take decisive action to support the economy if risks to the outlook heightens, its deputy governor said, offering the strongest signal to date from a policymaker of the bank's readiness to ease policy again this month.
Deputy Governor Kiyohiko Nishimura also strengthened the central bank's commitment to ultra-easy policy, saying that it will keep its asset-buying programme in place even after the end-2013 deadline for purchases if 1 percent inflation is not foreseen by then.
"The BOJ has been and will always be ready to take appropriate and decisive action when the economy deviates from our baseline scenario, or when risks to our scenario materialise," Nishimura told business leaders in the northwestern city of Niigata on Wednesday.
He warned that the central bank was focusing on downside risks to the economy, suggesting that it may expand monetary stimulus further soon to keep the fragile economy afloat.
"We need to be particularly mindful of the possibility that a prolonged slowdown in overseas growth may delay a recovery in exports and output, exacerbating the negative effect on domestic demand," Nishimura said.
The BOJ has been under intense political pressure to take bolder action to beat deflation that has plagued Japan for more than a decade.
Shinzo Abe, the head of a main opposition party which looks set to win a Dec. 16 general election, has called for "unlimited" easing to achieve 2 percent inflation and a possible revision to a law guaranteeing the BOJ's independence. Many market players have thus expected the BOJ to ease again at its next policy meeting on Dec. 19-20, to be held just days after the election, or in January. Nishimura's remarks, which echo the pessimistic views of BOJ board member Sayuri Shirai last week, suggest the BOJ may not wait until next year in expanding monetary easing further.
"Hard data for October were tilted less to the downside, but that does not mean downside risks have disappeared, so there is a good rational for the BOJ to ease this month," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo. "I don't think the BOJ will take the more radical measures that some people are arguing for. They're likely to go for a
steady increase in asset purchases, maybe even beyond 2013." The BOJ set a 1 percent inflation target in February and eased four times this year in an effort to revive the economy
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