BOJ deputy governor warns of risks, signals easy policy bias

By Leika Kihara

OKAYAMA, Japan (Reuters) - The Bank of Japan will focus on risks to the economy as uncertainty over U.S.-China trade talks and soft global demand cloud the outlook, its deputy governor said, stressing the bank's resolve to expand stimulus if the recovery is threatened.

But Masayoshi Amamiya, who is one of the BOJ's two deputy governors, signalled that no immediate easing was on the horizon as the government's spending package will boost growth.

"The BOJ's ultra-loose policy and government spending are an appropriate policy mix that will stimulate the economy," Amamiya told a news conference on Thursday.

"Now is the time to carefully watch how the mix of fiscal and monetary (stimulus) measures affect the economy," he said, suggesting that no immediate monetary easing was forthcoming.

The remarks, which echo those of BOJ Governor Haruhiko Kuroda playing down the chance of immediate easing, reinforce a dominant market view the central bank will keep policy steady at next week's rate review.

The BOJ held off on easing in October but offered the strongest sign yet on the chance of cutting interest rates if risks threaten the economy's path toward hitting its price goal.

The central bank has justified standing pat on the view that robust domestic demand will cushion the hit to exports from external headwinds. That view has been thrown into doubt by a slew of weak data on consumption and capital spending.

Amamiya blamed the recent weak data on one-off factors such typhoons that kept households from shopping.

But he offered a slightly bleaker view on domestic demand than before, pointing to the chance capital expenditure and private consumption may briefly weaken due to the hit from the global slowdown and October's sales tax hike.

"Exports and output will stay weak for the time being," Amamiya said. "Domestic demand may also slow temporarily ... though in the long-term, it will stay resilient," he said.

While the global economy was showing some bright signs, the BOJ would also not let its guard down against overseas risks that could further delay a pick-up in growth, Amamiya added.

"At present, the BOJ believes that downside risks to economic activity and prices, mainly those regarding global developments, require the most attention," he said in a speech to business leaders in Okayama, western Japan.

"If there's a greater possibility that Japan could lose momentum toward achieving our price target, we won't hesitate to take additional easing measures."

Amamiya said any further steps must take into account the need to address the rising cost of prolonged easing, such as the hit to commercial banks' profits from ultra-low rates.

"We'll think about how best to balance the benefits and costs of our policy. In doing so, we won't rule out various possibilities," he said.

(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Stephen Coates)