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 Even if the BOJ had tools remaining to expand stimulus, doing so
could be counter-productive after having deployed all possible steps
in a single blow in April, said Sato, who is among those in the
board who are more pessimistic about prospects for achieving the
central bank's inflation target.
"The BOJ has broken away from the incremental approach (on monetary
policy)," Sato told business leaders in Hakodate, northern Japan, on
Wednesday.
"This is the time to carefully monitor the policy effects, taking
into account future economic and price conditions."
Prime Minister Shinzo Abe is readying a $182 billion package this
week in his latest bid to pull the economy out of deflation and
bolster it ahead of the tax hike next April.
The BOJ stunned financial markets early this year by pledging to
double base money via aggressive asset purchases to achieve 2
percent inflation in roughly two years.
Expectations that the BOJ will maintain its ultra-loose policy
longer than other major central banks, and may even expand it again
next year, have bolstered Tokyo share prices and pushed the yen down
to a six-month low against the dollar.
Sato said the BOJ ought to be ready to act again to remove any
barriers that may emerge in meeting its price target. But he added
that it would be hard to offer stimulus that can shock markets as
much as, or even exceed, the April policy action.
"I think tools for additional action are limited. But that does not
mean the BOJ is ruling out any options," he told a news conference
after the meeting with business leaders.
While the BOJ sees no need for immediate action, its bureaucrats are
pondering options in case pressure for further stimulus heightens
next year, when the economy takes a hit from the sales tax hike and
prices lose support from the weak yen that is now pushing up import
costs.
Abe said on Wednesday that he believed BOJ Governor Haruhiko Kuroda
would make the right decision, when asked about the possibility of
additional monetary stimulus by an opposition lawmaker in
parliament.
"I put great trust in (Kuroda), who has said he would not hesitate
to take steps if risks emerged," Abe said.
Sato said the amount of government bonds the BOJ buys under the
April framework is near the limit of what it can take up
realistically, suggesting that he saw little room to top up
purchases further even if it were to ease again.
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THRESHOLD FOR ACTION HIGH
Sato and fellow board member Takahide Kiuchi have publicly doubted
that 2 percent inflation can be met in two years. Many
private-sector analysts also see the BOJ's timeframe as too
ambitious for a country mired in deflation for 15 years.
The former private-sector economist was among the three board
members who dissented to the BOJ's rosy projections in October,
calling for the price target to be watered down.
Sato repeated his view that the BOJ's target should be considered a
flexible one with certain allowance for deviations, given it was
difficult to keep inflation rigidly at 2 percent due to uncertainty
over how the effect of monetary policy appears on the economy.
He also voiced skepticism on whether consumer inflation, now nearing
1 percent, can sharply exceed that level because companies may
increase wages only temporarily and there was no guarantee the BOJ's
massive stimulus will heighten public expectations that prices will
keep rising.
"There's high uncertainty on whether short-term price rises will
affect medium- to long-term inflation expectations," he said.
Sato stuck to the BOJ's baseline view that Japan's economy is
recovering moderately, adding that he did not expect next year's
sales tax hike to severely hurt growth.
He stressed the BOJ should not expand stimulus unless Japan is hit
by a severe shock that derails progress in accelerating inflation to
2 percent.
"My understanding is that downside risks (that may trigger action)
... do not concern such trivial matters as a small divergence from
our economic and price forecasts," Sato said.
[REUTERS MEDIA; By
Leika Kihara]
(Additional reporting by Yoshifumi
Takemoto; editing by Shinichi Saoshiro & Kim Coghill)
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