BOJ's Kiuchi warns of rising overseas risks to economy

Reuters

By Leika Kihara

KUSHIRO, Japan (Reuters) - Risks to Japan's recovery are growing because the United States and other major economies may not be able to grow fast enough to pick up the slack from a slowdown in emerging markets, Bank of Japan board member Takahide Kiuchi said on Thursday.

Exports, a traditional engine of Japan's growth, may not pick up as much as expected given the global uncertainty, Kiuchi said just hours after data showed exports grew at their fastest pace in three years in August.

"Personally, I see risks to Japan's economy tilted somewhat toward the downside," Kiuchi, an economist, told business leaders in Kushiro in the northernmost prefecture of Hokkaido.

"Uncertainty remains over whether advanced economies, mainly the United States, can take up the slack from slowing growth in emerging nations and offer sufficient support to the global economy."

Some major emerging markets have been under pressure in recent months, with slowing growth rates compounded by falls in exchange rates and stock markets on concerns that the U.S. Federal Reserve was set to taper its massive monetary stimulus.

In the event, the Fed stunned markets on Wednesday by not trimming its stimulus, citing the need to see more evidence of strength in the economy, sending Asian shares and currencies surging.

INFLATION TARGET

Japan's economy expanded for a third straight quarter in April-June, outpacing many of its G7 counterparts, as the pro-growth policies of Prime Minister Shinzo Abe boosted sentiment and personal consumption.

The Bank of Japan upgraded its assessment of the economy earlier this month to say it was recovering moderately.

But Kiuchi offered a gloomier outlook, pointing to signs that private consumption -- which has been a driver of growth -- may have peaked as the positive effect of rising equities fade.

The BOJ launched intense monetary stimulus in April, pledging to double the base money via asset purchases to achieve its 2 percent inflation target in roughly two years.

Core consumer prices rose 0.7 percent in July from a year earlier, the fastest in five years, though they remain distant from the central bank's price target.

In his speech, Kiuchi reiterated his view that two years was not enough to meet the inflation target given slow wage growth and Japan's long experience of grinding deflation, and said maintaining the stimulus for too long or increasing it could sow the seed of fiscal imbalances.

Previously, the BOJ board has rejected his proposals to make the inflation target a medium- to long-term goal, and to set a deadline for the current stimulus.

"There is a not-too-small gap between markets and the BOJ on when the central bank's price stability target will be achieved. That is serving as a potential source of uncertainty on how the bond market sees the outlook for monetary policy," he said.

(Reporting by Leika Kihara; Editing by John Mair)

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