BOJ says ready to act if global slowdown threatens its price goal

Reuters

* U.S. fiscal woes among risks to Japan outlook - deputy govIwata

* Iwata - Any risks to BOJ's price goal would be fromoverseas

* Japan's economy recovering, on track to meet price goal

By Leika Kihara

TOKYO, Oct 18 (Reuters) - Slowing global growth and U.S.fiscal woes are among key risks to Japan's economy, the Bank ofJapan's deputy governor said, stressing the central bank'sreadiness to ease monetary policy further if its 2 percentinflation target comes under threat.

But Kikuo Iwata said that for now, Japan's economy is ontrack for a steady recovery and will gradually see priceincreases accelerate toward 2 percent, thanks in part to afiscal stimulus package planned by the government.

"If, in light of global uncertainties, the achievement ofour 2 percent inflation target becomes difficult, it's necessaryto take further policy action," Iwata said at an universitysymposium in Tokyo on Friday.

Iwata, a former academic known as a strong advocate ofreflationary policies, played a key role in crafting the BOJ'smonetary stimulus framework put in place in April. The bank aimsto double the country's base money to raise the inflation rateto 2 percent in roughly two years.

Japan's economy is moving in line with the BOJ's projectionof a moderate recovery, with personal consumption acting as akey driver of growth and companies gradually increasing capitalexpenditure, he said.

Core consumer prices rose 0.8 percent in August from a yearearlier, the fastest pace of growth in nearly five years,although most of the increase was due to rising energy pricesand a weak yen that inflated the cost of raw material imports.

But the global economic outlook has deteriorated comparedwith when the BOJ launched its intense stimulus in April, Iwatasaid, warning that any risks which could threaten achievement ofthe 2 percent inflation target would be from overseas.

He said that uncertainty over U.S. fiscal policy "willcontinue to serve as a big constraint and downside risk" to U.S.growth. Slowing Asian growth could also weigh on Japaneseexports, the deputy governor added.

'SOME FORM OF ACTION'

"If such overseas risks become big enough to make ourcurrent monetary stimulus insufficient to achieve 2 percentinflation, we're ready to take some form of action," Iwata said.

He added, however, the pain for Japan's economy from theoverseas slowdown will be somewhat offset by the government's 5trillion yen ($51 billion) fiscal stimulus package aimed atcushioning the hit from next year's sales tax hike.

Iwata also said the decision on whether more stimulus isneeded to get 2 percent inflation would be made from a long-termperspective. He said he could not comment on what kind of stepswould be considered if the BOJ were to act further.

Every month, the BOJ now buys roughly 7 trillion yen ingovernment bonds, as well as risky assets, to pump money intothe economy under its intense monetary stimulus frameworklaunched in April. It has stood pat on monetary policy sincethen.

In a separate speech on Friday, BOJ Governor Haruhiko Kurodasaid the effects of the bank's monetary stimulus are firmlyemerging on economic activity.

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