"Emerging nations may see an outflow of funds if investors' risk aversion heightens further. European banks also appear to be deleveraging dollar assets, which could restrain lending to emerging nations," Ishida said in a speech to business leaders in Shizuoka, central Japan. "If Europe's debt problems escalate further and trigger turmoil in global financial markets, the impact on Japan will be very severe," he said. Japan's economy rebounded from a recession triggered by the devastating earthquake in March but is expected to slow sharply this quarter, with the outlook clouded by a stubbornly strong yen and slowing global demand for its goods. The BoJ eased monetary policy in October to ease the pain from sharp yen rises and heightening global uncertainty, and has expressed its readiness to act again if risks to Japan's recovery prospects materialise. The board next meets for a policy review on Dec. 20-21. Ishida offered few clues on the outlook for monetary policy but stressed that various uncertainties lie ahead for the BoJ's forecast of a moderate economic recovery, with developments in Europe being the biggest near-term risk. "For now, there is no other way but for European policymakers to share a common understanding of the problem and work together toward a solution," Ishida said. "If their stance and measures they come up with gain market trust, they can at least prevent the problem from spreading and worsening further," he said, but added that a lasting solution to the crisis will not come any time soon. European leaders are striving to forge an agreement at a summit on Friday to enforce fiscal discipline, and France and Germany want to change EU rules to impose penalties on states that exceed deficit targets -- both measures aimed at staving off further market attacks on highly indebted and vulnerable economies. Ishida, a veteran banker and a former leasing company head, joined the board in June. He has voted with the majority of the board since then.