OKAYAMA, Japan (Reuters) - The Bank of Japan is ready to ease monetary policy further if necessary to help the economy recover and escape deflation, a deputy governor said on Wednesday, giving the strongest signal yet for additional stimulus since its surprise February action.
Kiyohiko Nishimura, speaking nine days before the BOJ's next policy review, also said global uncertainties such as Europe's debt crisis are the BOJ's prime concern as it examines its projection for a gradual recovery in the domestic economy.
"The BOJ is committed to implementing additional easing measures, if deemed necessary," Nishimura said in a speech to business leaders in Okayama, in western Japan.
"It is vital to make efforts both to support the recent momentum toward Japan's economic recovery and to strengthen growth potential for overcoming deflation," he said, adding that the BOJ is "actively" taking steps to achieve its 1 percent inflation goal.
Nishimura, one of the BOJ's two deputy governors, is regarded as among the board's more pessimistic members about Japan's economic outlook. His remarks provided the strongest signal toward further easing since the BOJ surprised markets in February by boosting its asset-buying program and setting the inflation target.
Sources have said the BOJ will consider easing monetary policy at its next policy review on April 27 by boosting government bond purchases under its 65 trillion yen ($804 billion) asset-buying and loan program as it battles to nudge consumer prices towards its 1 percent goal.
But Nishimura didn't elaborate on specific steps and only said those would depend on the outlook for the economy and prices as the BOJ - for its twice-yearly outlook report on April 27 - makes a thorough review of long-term economic and price forecasts for up to the year ending in March 2014.
"The risk factor that the bank is most concerned with is uncertainties regarding the global economy," he said in the speech, indicating he also was unconvinced about whether the U.S. economic recovery would be sustained.
"I wouldn't say a major change has occurred in Europe in the past few months. Risks remain and they remain large although the possibility of a Lehman-type shock has declined," Nishimura later said in a news conference.
After a brief easing in euro zone tensions late last year, worries have resurfaced in recent weeks, this time focusing on Spain's ability to repay its debt as it plunges deeper into recession. Some economists believe Madrid will follow in the footsteps of Greece, Portugal and Ireland and eventually seek a massive bailout.
The BOJ may slightly raise its consumer price forecasts in the outlook report to take account of oil price increases, although it doesn't take account of such technical factors in determining whether prices are stabilizing.
Asked about how it would link policy with its price forecasts, Nishimura said the momentum in price moves would be the key in determining what the bank should do for its 1 percent inflation goal.
The International Monetary said on Tuesday Japan could struggle to reach the target anytime soon, warning the BOJ may have to step up efforts to pump money into the economy.
Financial markets are rife with speculation about the BOJ's action at the next review, which has hampered the yen and pushed down bond yields.
Nishimura said the BOJ is trying to improve communication with not only markets but companies and households.
A former university professor and a statistics expert, Nishimura joined the board in 2005 and was appointed a deputy governor in March 2008.
He surprised markets by proposing unsuccessfully in April last year that the BOJ boost its asset purchases. He has voted with the majority since then. ($1 = 80.7700 Japanese yen)
(Editing by Joseph Radford and Richard Borsuk)