By Leika Kihara
TOKYO (Reuters) - The Bank of Japan must take bolder monetary easing steps to fight the heightening risk of deflation, board member Goushi Kataoka said on Thursday, warning of a darkening outlook for consumption and capital expenditure from the pandemic.
The BOJ must buy government bonds aggressively and make clear it is ready to cut interest rates further to ease the burden on households and firms, said Kataoka, among the most dovish in outlook of the policymakers in the nine-member board.
The central bank should also strengthen its commitment to combat deflation by setting specific conditions under which it will ramp up stimulus, Kataoka said.
"By taking action to show our determination we won't tolerate deflation, we can improve the credibility of our price target," he said in a speech to business leaders in Okinawa, southern Japan.
Kataoka has been a lone dissenter to the BOJ's decisions to maintain its interest rate targets, arguing that rate cuts are needed to pre-empt rising deflationary pressure.
The coronavirus pandemic has deepened Japan's recession and heightens challenges for the new prime minister, who is set to succeed incumbent Shinzo Abe later this month after Abe's abrupt decision to step down.
Kataoka said the hit to demand from COVID-19 was weighing on consumption and inflation, making it hard to expect price growth to accelerate toward the BOJ's 2% target.
"The job market is worsening due to the pandemic, which will drag on consumption," he said, adding that capital expenditure was also starting to fall.
"If the pandemic's impact is prolonged and hurts companies' medium- to long-term growth expectations, they may be forced to slash future demand projections and adjust capital spending plans," Kataoka said.