By Leika Kihara
WASHINGTON (Reuters) -Bank of Japan Assistant Governor Tokiko Shimizu said on Friday there had been "extremely high" uncertainty regarding Japan's economy, as slowing global growth and recent financial market stress cloud its outlook.
"The BOJ deems it necessary to conduct monetary easing and support the economy, and provide a favourable environment for firms to raise wages," Shimizu told a seminar hosted in Washington by the Peterson Institute for International Economics.
Rapid interest rate hikes by U.S. and European central banks could eventually depress global growth, which was among risks discussed at this week's International Monetary Fund (IMF) meetings, Shimizu said.
"More recently, financial market stress is drawing attention," she said. "Taking these risks into account, it's necessary to pay due attention to developments in the financial sector" and the impact on Japan's economy and prices.
The remarks came after the IMF on Tuesday trimmed its 2023 global growth outlook and warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.
Reflecting rising raw material costs and a tightening job market, more Japanese firms are raising prices and wages in a sign of change in the public's long-held deflationary mindset, Shimizu said.
Many big firms have accepted union demands for pay increases with some smaller companies following suit, she said.
Despite such positive signs, broader wage hikes are needed for Japan to hit the BOJ's 2% inflation target in a stable, sustainable manner, Shimizu said.
Shimizu is among BOJ officials accompanying new central bank governor Kazuo Ueda on a visit to Washington for this week's IMF and G20 finance leaders' meetings.
Japan's economy has made a delayed recovery from the scars of the COVID-19 crisis, with an end to pandemic-induced curbs propping up consumption.
But global recession fears cloud the outlook for the export-reliant economy, a risk that may keep the BOJ from phasing out its massive stimulus.
Markets are focusing on the BOJ's first policy meeting to be chaired by Ueda, on April 27-28, when the board will produce fresh quarterly growth and inflation forecasts extending through fiscal 2025.