Bank of Japan Governor Masaaki Shirakawa wants the government to get serious about getting its fiscal house in order and do something about the snowballing public debt.
“What supports the stability of a currency is the sustainability of the government's fiscal condition,” Shirakawa said in an exclusive interview with The Asahi Shimbun on May 11.
In the Diet, deliberations started on May 11 on bills aimed at raising the consumption tax rate in steps. However, the prospect for passage is uncertain.
Shirakawa expressed a sense of urgency that if the government’s fiscal situation deteriorates further, investors will start a massive sell-off of Japanese government bonds, throwing the Japanese economy into chaos.
“If the view spreads (in the financial markets) that the Japanese government’s fiscal situation is not sustainable, government bonds will be sold," Shirakawa said. "(As a result,) banks that hold large amounts of governments bonds will suffer serious losses, negatively impacting the economy.”
In such a situation, if the Bank of Japan buys large amounts of government bonds to avert a crisis in financial markets, the stability of the currency will be lost.
“As a result, uncontrollable inflation will take place. It is a lesson from history,” Shirakawa said.
As for what effects on financial markets will be felt if the Diet fails to pass the consumption tax rate hikes, Shirakawa refused to reply, saying, “I will not answer a hypothetical question.”
However, he emphasized, “It is the duty of the central bank governor to say clearly that it is important to maintain the sustainability of (the government’s) fiscal condition.”
The BOJ took additional monetary easing measures in February and April, which included expanding a fund for government bond purchases. As for the series of measures, some in the financial markets believe the central bank caved to pressure from politicians.
However, Shirakawa denied that criticism, saying, “We never make judgments (on monetary policies) based on factors other than the economy.”
Some lawmakers of the ruling and opposition parties are calling for revisions to the Bank of Japan Law so that the government has the right to dismiss the BOJ governor, which would curb its independence.
Shirakawa is opposed to revising the law.
“It is important to make deliberations based on the independence of the central bank,” he said.
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