WASHINGTON--Despite pressure to move Japan out of deflation, Bank of Japan Governor Masaaki Shirakawa warned that excessive money supply could lead to prices soaring out of control.
“Following the teachings of history, the consequences of the central bank’s huge money supply is uncontrollable inflation,” Shirakawa said in a lecture meeting on April 21 in Washington organized by the French central bank, Banque de France.
Shirakawa’s remark about the “side effects” of monetary-easing measures came ahead of the BOJ’s Policy Board meeting on April 27, in which the central bank will consider additional measures to increase money supply.
His speech could rankle government officials and ruling and opposition party lawmakers who argue that deflation is continuing because the BOJ’s monetary-easing measures are insufficient.
The European Central Bank recently offered huge loans to financial institutions to stem the regional crisis.
“The significance is big,” Shirakawa said in the panel discussion on the measure.
However, he added, “There is a possibility that the sense of crisis (over reconstructing governments’ fiscal situations) will wane.”
Japan’s enormous debt problem has raised international concerns that the world’s third-largest economy could eventually experience the crisis now seen in Europe.
Shirakawa said of Japan’s situation: “The (Japanese) people are curbing their spending due to anxieties over the fiscal situation. This spending reduction has become one of the causes of deflation.”
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