TOKYO, May 13 (Reuters) – Recklessly boosting the Bank of
Japan’s government bond buying could potentially disrupt
financial markets, Governor Masaaki Shirakawa said, signalling
the central bank’s readiness to stand pat for now after
loosening monetary policy last month.
Shirakawa also said that despite political uncertainty in
Greece, the risk of Europe’s sovereign debt woes triggering a
global economic downturn is smaller now than last year.
In April, the BOJ eased policy by increasing government bond
purchases by 10 trillion yen ($125 billion) under its asset
buying programme to pump more money into the economy and pull
the country out of deflation.
The central bank is already buying huge amounts of
government bonds, Shirakawa said in an interview with the Asahi
newspaper, warning that recklessly increasing that amount
further may give markets the impression it is monetising debt
and trigger a sudden spike in bond yields.
“We hope to carefully assess the impact (on the economy) of
the monetary easing measures we have taken so far,” he said in
the interview that was published on Sunday.
Shirakawa said the BOJ will maintain its ultra-easy monetary
policy. But he stressed that some problems cannot be fixed by
monetary policy, such as the rapidly ageing population, calling
for deregulation and structural reforms by the government.
He also reiterated the need for Japan to pursue fiscal
reforms to curb its huge public debt which, at double the size
of its $5 trillion economy, is the biggest among advanced
nations.
Prime Minister Yoshihiko Noda has staked his political
career on raising Japan’s sales tax to help fund the swelling
costs of healthcare to the world’s fastest ageing society. But
he faces an uphill battle passing necessary bills through
parliament as many lawmakers are wary of the potential damage to
the fragile economy.
Shirakawa warned that a loss of trust in Japan’s finances
may lead to a government bond sell-off that would leave Japanese
banks with huge losses on its bond holdings, making them wary of
increasing lending and thereby hurting the economy.
“It’s my responsibility as a central bank governor to say
clearly that it’s important for Japan to maintain its fiscal
sustainability,” Shirakawa said, when asked if failure to pass
through tax hike bills could jolt financial markets.
