By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said the central bank’s ultra-loose monetary policy is aimed at hitting its inflation target, not at funding government spending, warning against complacency in getting Japan’s fiscal house in order.
Ruling party lawmakers have been piling pressure on the government to compile a big spending package, increasing the chance fiscal policy could play a bigger role in sustaining a fragile economic recovery but at the cost of adding to a debt-pile that is the biggest among advanced economies.
Kuroda repeated his view that the effect of fiscal spending in stimulating the economy can be heightened if complemented by ultra-loose monetary policy.
But that did not mean the BOJ will keep printing money to bank-roll public debt, he added.
“Our monetary easing efforts are aimed at achieving our price target, not at helping fund government spending. There needs to be a clear line drawn on this point,” Kuroda told a parliamentary session on Friday.
Kuroda also said structural reforms must accompany fiscal and monetary stimulus measures to heighten the economy’s growth potential.
“A mix of fiscal and monetary policy isn’t enough. It’s also important to proceed with deregulation and structural reforms to heighten Japan’s medium- and long-term growth potential,” he said.
Under a policy dubbed yield curve control, the BOJ pledges to cap long-term borrowing costs around zero in an effort to reflate growth and achieve its elusive 2% inflation target.
Critics warn that years of ultra-low rates have allowed the government to keep spending and drag its feet in fixing Japan’s tattered finances.
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Source : Reuters Link