NAGASAKI, Japan (Reuters) – The Bank of Japan may ease monetary policy further if needed, its deputy governor said, offering the strongest signal to date by a central bank policymaker that more stimulus may be on the way to achieve the banks new 2 percent inflation target.
Deputy Governor Hirohide Yamaguchi said that policymakers should not miss a window of opportunity to beat deflation now opening up as Japans economy heads for a moderate recovery helped by an expected pick-up in overseas growth.
The BOJ may pursue further monetary easing if deemed necessary, while carefully scrutinizing economic and price developments, he said in a speech to business executives in Nagasaki, southern Japan, on Thursday.
Were ready to take a decisive policy response as ever, said Yamaguchi, one of the central banks two deputy governors.
The BOJ this month doubled its inflation target to 2 percent and switched to an open-ended commitment to buying assets next year, responding to intense pressure from new Prime Minister Shinzo Abe for bolder efforts to beat deflation.
In a meeting of the governments top economic panel held two days after the BOJs rate review, BOJ Governor Masaaki Shirakawa suggested that there may be room to increase asset purchases further to inject funds into the economy.
Yamaguchi offered an upbeat assessment of the global economy, pointing to some bright signs in United States and China that may help Japans economy resume a moderate recovery around the middle of this year.
Consumer inflation may reach 1 percent in the year ending in March 2015 if the economy picks up as projected, which gives policymakers the chance to sustainably end deflation, he said.
Now is a good chance for Japan to end deflation, Yamaguchi said. We shouldnt miss this window of opportunity.
With little room to cut already-low rates, the BOJ in 2010 put in place an asset-buying and lending program as its key monetary easing tool. Under the scheme, it has pledged to pump 101 trillion yen ($1.11 trillion) to markets by the end of this year and switch to open-ended asset purchases from next year.
Yamaguchi said the open-ended commitment shows the BOJs resolve to maintain its ultra-easy monetary policy without interruption, suggesting that any further policy loosening will take the form of further increases in asset purchases.
A career central banker, Yamaguchi is a key figure to watch for signals on the future direction of monetary policy and the markets consider him among those more eager to ease aggressively when needed. His five-year term ends on March 19.
($1 = 91.0650 Japanese yen)
(Reporting by Leika Kihara; Editing by Shinichi Saoshiro Kim Coghill)