Reuters: US Dollar Report: UPDATE 1-BOJ policymaker warns of uncertainty over recovery amid Europe woes

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UPDATE 1-BOJ policymaker warns of uncertainty over recovery amid Europe woes Aug 2nd 2012, 03:15 Wed Aug 1, 2012 11:15pm EDT * Japan's economy headed for recovery - BOJ Morimoto * External demand may not recover in time if Europe crisis deepens * BOJ to pursue powerful easing via asset purchases By Leika Kihara KANAZAWA, Japan, Aug 2 (Reuters) - Europe's simmering debt crisis may delay a pick-up in external demand crucial to Japan's economic recovery, a Bank of Japan policymaker said, underscoring the central bank's heightening concern over the outlook as the global slowdown persists. Board member Yoshihisa Morimoto stuck to the central bank's view that Japan's economy is headed for a recovery driven largely by spending for rebuilding from last year's earthquake. But he warned that strong uncertainty exists over the recovery with global demand weak and no clear end in sight to Europe's debt crisis that is keeping financial markets jittery. "If Europe's debt problem deepens or if strong uncertainty persists, that will weigh on the recovery of other regions such as the United States and China," Morimoto said in a speech on Thursday to business leaders in Kanazawa in the western Japan prefecture of Ishikawa. "If Japanese exports continue to stagnate as a result, external demand may not pick up before reconstruction-related spending peaks," he said. Morimoto's remarks suggest that the BOJ stands ready to ease monetary policy further if risks heighten enough to threaten Japan's recovery prospects. But he also stressed that the central bank was already expanding stimulus by steadily pumping money to meet its existing target for asset purchases, signalling that it would warrant a severe market shock to ponder further action now. "By steadily proceeding with asset purchases ... the BOJ will continue with powerful monetary easing," he said. Japan's economy is expected to outperform most other developed nations thanks to solid domestic demand, with the International Monetary Fund forecasting growth of 2.5 percent this year. But renewed yen rises have added to worries for Japanese policymakers worried about the pain on the export-reliant economy already reeling from slowing global demand. Despite growing risks to the outlook, the BOJ is expected to hold off on additional easing at its policy-setting meeting next week unless fresh developments in Europe trigger a yen spike big enough to hit business sentiment. That is partly because the BOJ is strugging to force-feed money to markets already awash with extra cash, as risk-aversive investors flock to the relative safety of Japan's short-term securities and government bonds. It missed its bond buying target in auctions on Wednesday, casting doubt on whether it can meet the 70 trillion yen ($895 billion) target for its asset buying and loan programme by the deadline of June next year. The BOJ set a 1 percent inflation target and eased monetary policy via an increase in asset purchases in February, and followed up with another easing in April to show its resolve to break free of deflation. The central bank held off on further easing since then despite slowing global growth that has driven other major central banks to loosen monetary policy. BOJ officials are counting on reconstruction spending to support growth, and argue that further easing will be necessary only if risks to the outlook heighten enough to derail the economy's recovery prospects. Morimoto, formerly an executive at a utility, is regarded as taking a neutral stance on monetary policy and has always voted with the majority since joining the board in 2010. Link this Share this Digg this Email Reprints

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