Bank of Japan Governor Masaaki Shirakawa said on Saturday that the country's economic outlook was very severe and that the central bank would take appropriate action to support the economy.

But he offered few clues on whether and when the BOJ would expand its asset-buying scheme, only saying that its next policy step would depend on economic conditions at the time.

The BOJ sees the outlook for Japan's economy as very severe, Shirakawa told a financial committee meeting in the lower house of parliament.

We'd like to take appropriate policy steps as needed while monitoring the economy and prices, taking into account that uncertainty over the outlook is high, he said.

Asked by a lawmaker whether the BOJ would consider buying more government bonds to support the economy, Shirakawa said only: We'd like to consider in earnest what would be the desirable step to take.

The BOJ kept monetary policy unchanged on Thursday even as it lowered its growth forecast for the current fiscal year, which began in April, and warned of uncertainties over the extent of damage that last month's devastating earthquake would inflict on the economy.

Shirakawa reiterated that having just expanded its asset purchasing scheme days after the March 11 quake, the BOJ preferred to spend more time examining the impact the step would have on the economy.

But he also left open the possibility of easing monetary policy further if damage from the quake proved bigger than expected, stressing that the central bank was focusing on downside risks to growth for the time being.

In a sign some in the BOJ were more cautious about the economic outlook than Shirakawa, Deputy Governor Kiyohiko Nishimura proposed on Thursday expanding the central bank's asset buying scheme by 5 trillion yen ($62 billion).

While the proposal was outvoted by the board, some market players said it may be a sign the BOJ may loosen policy as early as next month.

Japan is facing its worst crisis since World War Two after the 9.0 magnitude earthquake and subsequent tsunami devastated its northeast coast last month.

Reflecting the economic impact, factory output fell at a record monthly pace in March, household spending declined at a record annual rate and another private survey showed manufacturing activity languishing at a two-year low.

The BOJ eased policy days after the quake by doubling to 10 trillion yen the funds it sets aside for purchases of a range of financial assets, such as government bonds and corporate debt.

If the central bank were to next ease policy, the most likely step would be to expand the scheme again, sources familiar with the BOJ's thinking say.

Aside from the government bonds it purchases under the asset buying scheme, the central bank buys 21.6 trillion yen worth of long-term government bonds from the market each year.

Some lawmakers have called on the BOJ to buy more government bonds from the market, or even underwrite them directly, to help the government fund the huge costs for reconstruction.

(Editing by Hugh Lawson)

Bank of Japan Japan