KUMAMOTO, JAPAN (REUTERS) - Japanese policymakers must be mindful of the potential negative impact that China's economic slowdown could have on Japanese exports, central bank Deputy Governor Hiroshi Nakaso said on Monday.
He also warned of the risk that an expected interest rate hike by the US Federal Reserve could heighten global market volatility and hurt emerging markets vulnerable to capital outflows.
While China's economy is expected to stabilise thanks to monetary and fiscal stimulus measures taken so far, its slowdown may be prolonged by the huge slack in output and the property market, he said.
"Even if China's economy maintained its growth rate, the main contribution would be from public investment, so the effect on Asian economies and Japan's exports warrants due attention," Mr Nakaso told business leaders in Kumamoto, southern Japan.
Still, Mr Nakaso voiced confidence Japan's economy can weather such global risks, and stressed that exports will emerge from the doldrums as global growth picks up.
"Exports and output are likely to increase gradually, albeit with some fluctuations," he said.
Japan's exports rose at the fastest pace in five months in June due to a pick-up in sales of cars and electronics. Though shipments to China picked up, a private factory survey last week showed its new domestic and export orders fell in July.
The BOJ trimmed its growth forecast this month as soft exports and output heightened the possibility of an economic contraction in the second quarter.
But the central bank expects growth to rebound in the third quarter.
It maintained its projection that inflation will hit its ambitious 2 percent target around the April-September first half of next fiscal year, signalling that it saw no need to expand monetary stimulus any time soon.
Mr Nakaso stuck to the BOJ's upbeat view on prices, saying that while inflation will hover around zero this summer, it will accelerate at a "fairly quick pace" after that.
Consumer inflation would have been 1 percentage point higher were it not for last year's sharp oil price falls, he said, adding that the pressure from the oil rout will be the biggest this summer but dissipate thereafter.
"The underlying trend of inflation is seen improving further," he said.