| KAGOSHIMA, Japan
KAGOSHIMA, Japan Bank of Japan policymaker Koji Ishida on Thursday stressed the central bank's resolve to continue pursuing powerful monetary easing, warning of a bigger-than-expected slowdown in overseas growth as Europe's simmering debt crisis keeps markets jittery.
Ishida, a former banking sector executive, said the central bank's ultra-loose monetary policy has kept borrowing costs in Japan very low despite market worries over the euro-zone crisis.
He also said Japan's economy is on course for a moderate recovery mainly due to support from domestic spending for rebuilding from last year's devastating earthquake.
But he warned that Europe's debt woes and slowing overseas growth could challenge the BOJ's recovery forecast, which was made in its twice-yearly outlook report issued in April and serves as a basis for its policy decisions.
"As a trend, (Japan's economy) is highly likely to move in line with the BOJ's mainline scenario," Ishida said, adding that its recovery projection rests on the assumption that exports will pick up before the boost from reconstruction spending begins to fade.
"But the damage to Japan's economy would be huge if European and U.S. economies destabilize and weigh heavily on growth in emerging nations," he said in a speech to business leaders in Kagoshima, southern Japan.
The BOJ kept monetary policy unchanged last week, saving its firepower in case Europe's debt crisis deepens and triggers a spike in the safe-haven yen.
But central banks across the globe have been on guard in case doubts about Europe's financial system and its government debt threaten money market liquidity and the broader economy.
BOJ officials have signaled that the Japanese central bank is ready to expand monetary stimulus further if risks to the country's recovery outlook heighten.
Japan's economy grew an annualized 4.7 percent in the first quarter, and economists expect solid private consumption and rebuilding following last year's disaster on March 11 to sustain growth this year.
In a sign any recovery will be fragile, however, a Reuters poll showed that the corporate mood turned pessimistic in June for the first time in four months as Europe's debt crisis, a strong yen and worries about a slowdown in emerging markets took their toll on manufacturers' sentiment.
The BOJ eased policy in February and set a 1 percent inflation target to underline its resolve to reinflate an economy beset by deflation for much of the past two decades.
It relaxed policy again in April but has paused since then on the view that Japan's economy is headed for a moderate recovery.
Ishida has voted with the majority since joining the board in June 2011.
(Editing by Edwina Gibbs and Richard Borsuk)