OTSU: Bank of Japan board member Takahide Kiuchi warned on Wednesday that exports could continue to disappoint and that consumer spending could weaken, robbing the economy of two important drivers of growth as poliymakers try to pull it out of deflation.
Kiuchi, known for his pessimistic outlook on the economy, expressed concern about the impact of slowing momentum in emerging markets and said domestic wages are not likely to rise quickly as companies continue to favour contract workers who earn less than regular employees.
His comments came hours after data showed Japan's exports grew less than expected in February.
Kiuchi was also cautious on additional quantitative easing, but speculation is likely to remain that the BoJ could ease policy again some time this year to keep prices headed toward its 2 percent inflation target.
"I personally pay closer attention to downside risks," Kiuchi said in a speech to business leaders in Otsu, western Japan.
"I am paying particular attention to developments in exports and consumption as downside risks to the economy."
Kiuchi's pessimism places him in the minority on the central bank's nine-member board. His views will not have an immediate impact on policy but highlight the concerns that some economists have about the outlook after the government raises the sales tax next month.
Policymakers had been hoping that exports would improve, cushioning the expected drop in domestic spending after the sales tax hike takes effect.
The BoJ last week maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($590-$690 billion).
The BoJ launched the stimulus last April, saying it would lift inflation to 2 percent within around two years via aggressive asset purchases as it sought to end 15 years of deflation.
The BoJ downgraded its view of exports last month reflecting weak shipments to Asia and a record current account deficit in January.
BoJ Governor Haruhiko Kuroda has expressed confidence that exports would quickly recover.
But Kiuchi cited China's slowing momentum and uncertainty about its shadow banking system, as well as economic imbalances in emerging economies, as reasons why Japan's exports will continue to underperform.
Despite a sharp fall in the yen since late 2012, which has pushed up the cost of imports, there has not been a equivalent boost in exports, in part because of exporters' reluctance to cut prices.
Kiuchi reiterated the BoJ's baseline scenario that the economy will continue to grow after the government raises the sales tax to 8 percent from 5 percent on April 1.
However, he said companies are still too reluctant to raise wages, which could hit consumption as consumer prices continue to rise.
Kiuchi, who has repeatedly proposed the BoJ water down its price target due to worries that the two-year timeframe cannot be met, said on Wednesday that the 2 percent target is too high given Japan's potential growth rate and that there will be room to change the target in the future.
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