* Japan still distant from limits of monetary easing-Harada
* Adds bank lending will rise if deflation eradicated
* BOJ can cut rates, buy more assets - Harada (Adds quotes, detail)
By Leika Kihara
MATSUMOTO, Japan, Oct 12 Bank of Japan board member Yutaka Harada said on Wednesday the central bank should not hesitate to expand monetary stimulus if global economic shocks hamper achievement of its price target.
Harada shrugged off the view that the BOJ had exhausted its policy ammunition to reflate the economy, stressing it still had room to cut interest rates, increase asset purchases or accelerate the pace of money printing.
"Japan is quite distant from reaching the limits of monetary easing," Harada said in a speech to business leaders in the central Japan prefecture of Nagano.
The BOJ last month switched its policy to target interest rates and away from expanding the monetary base - or the pace of money printing - after years of massive asset purchases failed to jolt the economy out of decades-long stagnation.
Under a new "yield curve control" framework, the BOJ pledged to keep the 10-year bond yield around zero percent. It also maintained a policy of charging 0.1 percent interest on a portion of excess reserves financial institutions park with the central bank.
Harada rejected criticism that negative interest rates were counter-productive because they hurt bank profits and discouraged them from boosting lending, saying that bank lending would increase if the BOJ's monetary easing ended deflation.
"If deflation ends, companies will resume spending and demand for bank lending will increase," Harada said. "Under current circumstances, I don't think negative rates would hurt bank profits enough to have an adverse impact on the economy."
Harada noted that the BOJ's holdings of government bonds comprised just 30 percent of Japan's public debt, leaving room for additional purchases by the central bank.
"The BOJ shouldn't hesitate to ease policy if achievement (of its price target) is hampered by sudden changes in the global economy," Harada said.
Harada, a former academic, has been a vocal advocate of aggressive central bank money printing to reflate the economy, but also voted for the BOJ's decision last month to shift the bank's policy focus to interest rates from the pace of money printing. (Reporting by Leika Kihara; Editing by Chris Gallagher and Eric Meijer)
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