Bank of Japan Deputy Governor Masazumi Wakatabe warned of growing economic risks from the simmering U.S.-China trade war, reinforcing market expectations the central bank's next move could be to ramp up stimulus.

Wakatabe also said unconventional monetary tools used to fight the 2008 global financial crisis, such as quantitative easing and negative interest rates, will remain in the central banks' "arsenal" to combat the next economic downturn.

"We need to pay increased attention to heightening risks to the BOJ's scenario" that Japan's economy will expand moderately as a trend. The BOJ will guide policy to ensure Japan never falls into deflation again," said Wakatabe.

Wakatabe said U.S.-China trade tensions, if prolonged, would hit the global economy not just through higher tariffs, but by discouraging firms from investing and hurting market sentiment.