Bank of Japan Deputy Gov. Kazumasa Iwata said financial market turmoil and a slowdown in the United States or Europe could hurt the world's second-largest economy.
"If the stock slump and the yen's gain continue, that would have a negative effect on Japan's economic growth," Iwata, 60, said Thursday in a speech to business leaders in Shimonoseki, Yamaguchi Prefecture. Growth may also cool "if the U.S. economic slowdown deepens and European economies suffer a deceleration."
Iwata was the sole dissenter when the board raised the benchmark overnight lending rate to 0.5 percent in February. Expectations that the bank would raise rates for a second time this year waned last quarter, after losses on securities linked to U.S. subprime mortgages led to a global shortage of credit and caused stocks to tumble and the yen to surge.
For the next rate increase, "the BOJ has three conditions in mind: growth sustainability of the Japanese economy, the prospects of deflation ending and the stabilization of global financial markets," Takashi Omori, chief economist at UBS AG in Tokyo, wrote in a note to investors Wednesday. Omori expects the central bank to increase borrowing costs in January, though there's a "non-negligible" chance of a rate increase as early as this month should markets calm down.