CHIBA, Japan (Reuters) - Japan will not slip back into deflation as improvements in the economy offset the temporary pressure on prices from slumping oil costs, a central bank policymaker said, signaling that no immediate expansion of monetary stimulus was necessary.
Bank of Japan board member Yoshihisa Morimoto acknowledged that consumer inflation is likely to slow in coming months due largely to steep falls in crude oil prices, which are driven both by excess supply and weak global demand.
But the former utility executive warned against focusing too narrowly on monthly consumer price index (CPI) data, stressing that the BOJ was looking more at the broader trend of prices that took into account wages and the economy's output gap.
"Crude oil prices have fallen further (since the BOJ's monetary easing in October) but when you look at other factors, the broad trend hasn't changed," Morimoto told a briefing after meeting business leaders in Chiba, eastern Japan, on Monday.
Core consumer inflation is likely to head toward the BOJ's 2 percent target from around October as companies raise wages and prices reflecting improvements in the economy, he added.
Japan's economy is emerging from recession as exports and output show initial signs of picking up, offering relief to the BOJ which is keen to stand pat on policy for now after having just eased in October last year.
But core consumer inflation slowed to 0.5 percent in the year to December and is set to move further away from the BOJ's target due to the collapse in oil prices, keeping alive expectations the bank may ease policy again soon.
Morimoto was one of the four dissenters to the BOJ's decision to expand its stimulus program in October last year, a move aimed at preventing oil price falls, and a subsequent slowdown in inflation, from hurting inflation expectations.
Morimoto said he would vote against additional easing if it had been proposed now, arguing that topping up asset purchases further will not give much of a boost to public sentiment.
The benefits of expanding stimulus are diminishing with interest rates already historically low, while the BOJ's radical monetary program risks creating financial imbalances, he said.
He also cautioned against focusing too much on pushing up inflation, saying that consumer sentiment remains weak after being hit by the rising cost of living as sharp yen declines raise import costs.
"What's important is to achieve a cycle under which prices rise gradually accompanied by improvements in the economy," he said. Morimoto's five-year term in the board ends in June.
Reporting by Leika Kihara in TOKYO; Editing by Chris Gallagher and Jacqueline Wong