HAKODATE—Bank of Japan policy board member Ryuzo Miyao said on Wednesday that the central bank will take action if necessary to stop downside risks from undermining the nation's economic recovery, bolstering the view that the BOJ may soon take further easing steps to counter the impact of the strong yen and slowing overseas demand.
"I hope the powerful recovery, mainly in production, will continue after the autumn, but there are several uneasy factors," which include the possibility of slower overseas demand, the yen's stubborn uptrend, potentially higher electricity costs and expectations for prolonged deflation, Mr. Miyao said in a speech to business leaders in Hakodate, northern Japan.Issei Kato/Reuters Bank of Japan board member Ryuzo Miyao speaks to the media during a news conference at the BOJ headquarters in Tokyo in 2010.
"If judged necessary after carefully examining economic and price conditions, including foreign exchange moves, overseas economies as well as local economies, we will take appropriate steps," Mr. Miyao said at a post-speech press conference, stressing that the BOJ's policy doesn't depend only on foreign exchange rates.
Mr. Miyao's cautious remarks will likely add to speculation that the BOJ will soon pursue additional monetary easing measures. Although the bank's policy board decided to stand pat at its latest meeting last week, many economists expect the BOJ to take action within the coming months.
Given that the pace of the U.S. economic recovery is "significantly" slowing and risks surrounding European sovereign debt problems are increasing, overseas demand could weaken more than initially expected, causing problems for Japan's export-dependant economy, Mr. Miyao said.
Mr. Miyao also voiced concern that the stubbornly strong yen may further undermine the country's industrial production base, pushing companies to shift production overseas and eventually weighing on growth.
Still, he said data released so far haven't shown that the high yen has caused a sharp deterioration in business sentiment among domestic firms.
Fears over the health of the global economy have pushed the yen—regarded as a safe-haven—to record highs. After falling to an all-time low of ¥75.94 last month, the dollar stood at around ¥76.90 as of 3.28pm local time on Wednesday.
In the face of the strong yen, the BOJ in August increased the size of its special fund, which includes asset purchases and low-cost loans, by ¥10 trillion to ¥50 trillion, in tandem with government intervention in the currency markets.
The central bank has been buying a variety of financial assets—from government and corporate debt to exchange-traded funds and real estate investment trusts—in a bid to lower interest rates and risk premiums.
Though he didn't specify any preference on policy options, he said current interest-rate levels are "most appropriate" at this point. The BOJ's key policy rate is currently in a 0.0%-0.1% range, while interest on excessive reserves is at 0.1%.
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