watching forex moves carefully

The Bank of Japan is carefully watching markets, including yen moves, as recovery prospects for the export-reliant economy remain uncertain, board member Sayuri Shirai said, a sign that the central bank was maintaining its ultra-easy policy bias.

Shirai also warned that a loss of confidence in Europe's fiscal and structural reforms may heighten market tensions again and hurt global growth, adding to risks for Japan's recovery.

"Global investors' risk appetite has recovered somewhat, with stock prices picking up and the yen weakening against the dollar and the euro compared with the end of last year," Shirai said in a speech to business leaders in Akita, northern Japan.

"But global financial developments remain uncertain, so we need to continue to carefully watch market moves including currencies," she said.

Asian shares fell for a sixth straight session on Thursday, with sentiment hurt by worries about the health of Spanish banks and deepening political chaos in Greece.

Renewed investor appetite for safe-haven currencies has pushed up the yen, adding to headaches for Japanese policymakers worried about the pain a strong yen inflicts on the economy just emerging from the doldrums. The U.S. dollar stood at 79.73 yen on Thursday, having hit its lowest in nearly three months, at 79.428 per dollar, on Wednesday.

Shirai, the first board member besides Governor Masaaki Shirakawa to speak publicly since theBOJ's monetary easing last month, said the latest stimulus was aimed at ensuring that the economy heads for a recovery and at showing the central bank's determination to achieve its 1 percent inflation target.

"I'd like to stress that there's still high uncertainty over Japan's economic and price outlook," she said.

"Just because we're seeing some bright signs in the economy and prices and that a recovery is foreseen, it doesn't guarantee that our (recovery) forecast will be achieved. Even if it is achieved, the pace (of recovery) is uncertain."

Shirai said that among risks to the outlook, she was particularly mindful of how further rises in crude oil prices and Europe's debt woes could affect global growth.

"The risk of Europe's debt problem jolting global markets and severely hurting the global economy has fallen, but the problem itself has not disappeared," Shirai said.

"Global market tension may heighten again if Europe loses market trust over its reforms" to boost long-term economic growth and ensure fiscal sustainability, thereby hurting the global and Japanese economies, she said.

The BOJ boosted asset purchases by 10 trillion yen ($125 billion) in April, its second monetary easing in just over two months, in a move seen aimed at convincing impatient politicians and investors of its resolve to end deflation that has plagued Japan for more than a decade.

The action came even as the central bank nudged up its economic and price forecasts for coming years and stuck to its view that Japan's economy will soon resume a moderate recovery.

But some lawmakers continue to demand further easing, through BOJ buying more longer-dated government bonds, to ease the pain from a strong yen on the economy.

A former IMF economist, Shirai has voted with the majority since joining the board in April last year. She is considered as among the more pessimistic board members on Japan's economic outlook.

($1 = 79.7750 Japanese yen)