March 19, 2014 / 2:40 PM / 6 years ago

UPDATE 1-Japan more resilient to sales tax hike pain -BOJ's Sato

* 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 (Reuters) - 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)

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