Japan's economy will emerge from a lull soon and is certain to pull out of deflation over time, a Bank of Japan policymaker said, offering a somewhat upbeat take on the outlook on budding signs of a recovery.

But Hidetoshi Kamezaki, a former trading house executive, said structural reforms and efforts to restore Japan's fiscal health were very important for an economy that is unlikely to see any strong recovery given sluggish domestic demand.

In a speech to business leaders in southern Japan on Wednesday, he also warned of economic risks on the global front that Japanese policymakers could not afford to ignore.

Europe's sovereign debt problem is due to worries about the sustainability of the region's fiscal state. Japan can't dismiss that as someone else's problem, he said.

It needs to find a roadmap to solve this problem before market confidence is lost.

Kamezaki added that Japan's economy was highly likely to return to a gradual recovery path soon, roughly following the BOJ's official line.

It's hard to say with certainty which month it will be. But the economy is likely to escape from a lull toward spring, he told a news conference after meeting with business leaders.

He offered few clues on monetary policy, saying only that the BOJ needed to be proactive in taking steps to beat deflation.

His comments indicate that additional easing steps will be justified as long as deflation persists, said Seiji Shiraishi, chief economist at HSBC Securities Japan.

The options for the BOJ, however, are limited even if it needs to ease further.


Japan's economy likely rebounded in the first quarter after an expected slight contraction in the final quarter of last year, as firm demand from emerging Asian nations fuels a pickup in exports.

These encouraging signs have prompted the government to upgrade its economic assessment and the BOJ to forecast an early escape from the doldrums, dampening expectations of an imminent monetary easing.

Kamezaki said core consumer prices were expected to turn positive in the next fiscal year beginning in April, partly on rising commodity costs, in line with the BOJ's latest forecasts issued in January.

Given the likelihood of stable long-term inflation expectations and gradual improvement in the supply-demand balance, it is certain that the Japanese economy is heading toward an escape from deflation, he said.

Still, Kamezaki warned that risks for the U.S. and European economies, hobbled with excess slack, were tilted toward the downside and that spending in Japan would remain weak.

A strong recovery is unlikely as high uncertainty over the outlook will keep households and companies from boosting spending aggressively, he said.

Kamezaki has mostly voted with the majority of the board and toed the BOJ's official line on monetary policy. But his views on the economy have erred somewhat on the cautious side within the nine-member board.

The BOJ last year nudged interest rates effectively to zero, set up a 5 trillion yen ($61 billion) pool of funds to buy assets ranging from government bonds to private debt, and expressed its readiness to top up the fund if the growth outlook worsens.

It also pledged to maintain zero rates unless a pickup in consumer inflation to around 1 percent appeared on the horizon.

Analysts expect the BOJ to stick to zero rates for several years as consumer prices are unlikely to approach that level anytime soon.

The BOJ expects Japan to achieve core consumer inflation of 0.3 percent in the year beginning in April and 0.6 percent in the following year.

(Editing by Edmund Klamann)