BOJ must act if oil falls affect inflation expectations: Nakaso

The Bank of Japan must ease monetary policy further if oil price falls hamper its efforts to ramp up inflation expectations, its deputy governor said, stressing the central bank's readiness to top up stimulus to hit its ambitious inflation target.

But Hiroshi Nakaso also said oil price falls alone will not immediately lead to further action because the BOJ is focusing on whether inflation is accelerating as a trend backed by a solid economic recovery.

"Oil price falls may push down prices in the short-term but will accelerate inflation in the somewhat long-term perspective because they benefit an oil-importing economy like Japan," he told business leaders in Matsuyama, in the western Japanese prefecture of Ehime, on Monday.

"We will adjust monetary policy if the price trend changes and if further action is warranted to achieve our 2 percent inflation target at an early date," said Nakaso, a career central banker and one of the BOJ's two deputy governors.

Nakaso said the decline in oil prices since last summer has drawn in roughly 7 trillion yen ($58 billion) worth of income to Japan's economy by improving its terms of trade.

While he steered clear of addressing what measures the BOJ could take if it were to ease again, Nakaso said he did not see any risk of the central bank facing trouble buying bonds in the near future.

The BOJ now buys 8-12 trillion yen of Japanese government bonds each month from the market, roughly the same size issued by the government. Critics say the huge purchases are drying up liquidity and may cause sudden swings in the market.