KYOTO: Bank of Japan Deputy Governor Kiyohiko Nishimura said there is no quick fix for Europe's debt woes with market tension likely to persist for a long time, and also warned of global turmoil if there is a resurgence of worries about the US economy.
"Europe's sovereign debt problems are essentially the result of expanding imbalances in the region ... thus we need to be aware that there is no immediate silver bullet for solving its problems," Nishimura said on Wednesday in a speech to business leaders in Kyoto, western Japan.
"We need to brace ourselves for global financial market tension remaining high for a long time."
Nishimura became the latest of the BoJ's nine-member policy board to warn that the euro zone crisis is the biggest risk for Japan's economic recovery, adding that it is already having a major impact on the global economy.
He also said a recent series of benign US data have helped contain excessive pessimism about the global economy, but if worries resurface about the world's biggest economy it could trigger sudden turmoil in global markets.
Nishimura stuck to the BoJ view that Japan's economy is set to resume a moderate recovery supported by the strength of emerging economies and reconstruction work, after sustaining the impact of the global slowdown, the yen's strength and Thai floods.
Japan's production data for October, released earlier on Wednesday, was stronger than expected and provided some relief, as it indicated the economy is moving in line with the scenario drawn up by the BoJ, which also predicts exports and production will stay flat for now.
Still, with a recession looming in Europe and growth in the United States expected to remain slack, the outlook for external demand is highly uncertain.
The BoJ could offer additional stimulus to help sustain the economy's recovery depending on how share prices and the yen perform, analysts say.
Europe's sovereign debt crisis has shown little sign of letup with investors fleeing the euro-zone bond market, causing yields in Italy to spike.
In Brussels, European finance ministers agreed to strengthen the euro zone's bailout fund and said they are consulting the IMF about more aid as bond yields surge across the region.
Nishimura said global investors continue to buy the yen as a relatively risk-free asset as it is one of the major currencies that are liquid and free floating.
"If this characteristic leads to sharp rises in the yen that are not justified by economic fundamentals, Japanese firms could accelerate their shift overseas shifts beyond a critical point."
Japan's economy has rebounded from a recession triggered by the March 11 earthquake and tsunami but is expected to slow sharply this quarter as the initial spurt driven by companies restoring supply chains and production facilities tails off.
With an expected boost from a $155 billion reconstruction budget passed this month still some months away, policymakers may feel pressure to act again.
The BoJ, due to hold its last scheduled policy review of the year on Dec. 20-21, has signalled its readiness to ease policy again if its scenario of a moderate recovery comes under threat.
It held policy unchanged earlier this month, having eased a month earlier, but cut its economic assessment to say the pace of Japan's recovery is slowing.
Nishimura has been among board members more pessimistic about Japan's economic outlook and surprised markets by proposing unsuccessfully in April that the BoJ should boost its asset purchases. He did not repeat the proposal in subsequent meetings and has voted with the majority.
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