People walk towards the Bank of Japan building in Tokyo in this file photo from Aug 4, 2011. As trade deficit widened in January, Bank of Japan board member Yoshihisa Morimoto remains upbeat on the economy, saying on Thursday that the effects from the consumption tax hike in April will not affect growth rate - Reuters Photo.
NIIGATA, Japan: Bank of Japan (BoJ) board member Yukitoshi Funo said the central bank will make full use of its existing policy tools to encourage household and companies to start spending again and shed their deflationary mindset.
Even as data showed industrial output ground to a halt in July, Funo offered an upbeat view on Japan's economic prospects, saying a tightening job market will gradually nudge firms into raising wages and help boost private consumption.
While some companies are holding off on raising prices due to sluggish household spending, many of them are likely to resume price hikes once consumption picks up, he added.
But the former auto executive warned of external risks that are clouding the outlook for the world's third-largest economy, such as soft emerging market growth and uncertainty over the pace of US interest rate increases.
He also pointed to uncertainties over how much companies will raise wages and to what extent any rises in household income will boost consumption.
"Japan needs to shift away from a deflationary mindset that became entrenched due to a prolonged period of deflation. We're still halfway in achieving our price target," Funo said in a speech to business leaders in Niigata, northern Japan, on Wednesday.
Japan is likely to achieve the BoJ's 2% inflation target by March 2018, though there is uncertainty on this projection due to weak global growth, Funo said, reiterating the BoJ's official view on the price outlook.
The central bank has already pushed back the timing of hitting that target several times as prices languish.
Japan's economic growth ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest as weak global growth and the yen's 20% rise against the dollar so far this year hurt exports and capital expenditure.
Data on Wednesday showed industrial output did not grow in July after June's gains, suggesting factory activity is stalling.
Despite three years of heavy money printing by the BoJ, weak household spending and a strong yen that pushes up import costs have kept inflation distant from the bank's 2% target.
Markets are simmering with speculation the BoJ will ease monetary policy further at its next rate review in September, when it conducts a comprehensive review of the effects of its existing stimulus programme.
Funo is a former Toyota Motor Corp executive who joined the BoJ last year. He has voted with the majority of the board including for the bank's decision in January to adopt negative interest rates.
The BoJ's current monetary easing framework consists of three tools, which is to buy large quantities of assets, take on credit risk by buying some risky assets and cutting interest rates into negative territory. - Reuters
