* BOJ board member Sato calls on govt for fiscal reforms
* Warns of limits to extent BOJ can keep yields low
* Says see encouraging signs in Japan wages
(Adds quotes, details)
By Leika Kihara
NEW YORK, March 19 Bank of Japan board member
Takehiro Sato said on Wednesday the country's economy is more
resilient to rises in the consumption tax than when it was
previously hiked in 1997, suggesting that he saw no immediate
need to expand monetary stimulus further.
He also called on the government to pursue fiscal
consolidation to avoid long-term interest rates from spiking,
warning that there are limits to how much central banks can curb
unwelcome rises in bond yields.
"Japan's economy is steadily pursuing the path of achieving
our 2 percent price target ... Japan's economy is entirely
different from than in 1997, when the sales tax was raised to 5
percent," Sato said in a speech at the Japan Society, adding
that he also saw "a lot of encouraging signs" in wages.
The BOJ has stood pat on policy since launching an intense
burst of stimulus last April, when it pledged to accelerate
inflation to 2 percent in roughly two years via aggressive asset
purchases in a country mired in deflation for 15 years.
Markets are rife with speculation the BOJ will expand
monetary stimulus again in coming months, to cushion the pain
from another sales tax hike to 8 percent in April that is set to
hit private consumption even before exports pick up.
A Reuters poll showed analysts expect the BOJ to act again
by July, despite reassurances by the central bank the economy
can withstand the tax hike without further monetary loosening.
Sato, known as among those in the nine-member board who are
more pessimistic about the economy, said fiscal stimulus steps
already taken by the government and a robust banking system
means Japan won't face a recurrence of 1997, when a combination
of a sales tax hike, domestic banking-sector woes and the Asian
financial crisis nudged it into recession.
He also repeated his long-held view that the BOJ's 2 percent
inflation target should be regarded as a flexible goal with room
for some allowances.
"The price stability target is by no means a rigid,
superficial framework," he said, stressing that any rises in
inflation must be accompanied by higher wages and improvements
in the economy.
The government, in the meantime, must keep up efforts to
rein in Japan's huge public debt and curb the cost of borrowing
because once the country exits from deflation, expectations of
an improving economy and future inflation will likely put upward
pressure on nominal long-term interest rates, Sato said.
"The success in overcoming deflation might produce unwelcome
spill-over effects" given the significant size of Japan's public
debt, he said.
(Reporting by Leika Kihara; Editing by Chizu Nomiyama)