Bank of Japan has been called to be more vigorous with fiscal and structural policies to reflate a fragile economic recovery by the International Monetary Fund First Deputy Managing Director David Lipton even as he welcomed the Bank of Japan's new policy framework as a boost to its credibility.
Lipton stressed that central banks must be open to new ideas to help spur growth as he also shrugged off the view that monetary policy was nearing its limit as a means to revive economies across the globe.
"Central banks have to always be ready to do whatever they can based on the realities they face. The BOJ has been an example of imaginative approaches," Lipton told Reuters on Saturday.
After years of massive asset purchases failed to jolt the economy out of stagnation, the e BOJ last month switched its policy target to interest rates from the pace of money printing.
Among topics of debate at this week's G20 finance leaders' gathering and IMF meetings were fears that central banks have nearly exhausted the limits of what monetary policy can do. Other global central banks which are also struggling to revive growth are closely watching the increasingly radical monetary experiments by the BOJ.
The BOJ pledged to keep the 10-year bond yield around zero percent under a new "yield curve control" framework. The rate of interest that it charges on some excess reserves financial institutions park with the central bank which is 0.1 percent is also maintained by the bank.
Whether it was feasible for a central bank to forcefully cap rates at a set level and whether the BOJ could control such a long end of the curve were just some of the doubts that were voiced by some academics.
The BOJ's yield curve control is "not just possible but a good idea," the IMF now believes, said Lipton.
"I think it's good that the BOJ intensifies its efforts to try to reflate the economy," he said.
"The steps they've taken will give them more flexibility of action and enhance their credibility. It's a step in the right direction," he added.
But to achieve sustainable and balanced economic growth, the flexible fiscal policy and structural reforms - the two other arrows of premier Shinzo Abe's "Abenomics" stimulus policies has to be fired "with vigor" by Japan, Lipton said.
"We can't expect the best outcome relying just on monetary policy," he said. "Combining the three-arrow approach with a stronger focus on boosting incomes would be one way to take some of the heat off the central bank," he added.
Lipton warned that central banks and governments must ensure they are cooperating - not depending on each other - to help the economy with countries increasingly forced to deploy full-strength fiscal and monetary policies to battle low growth.
"We're for central bank independence but we're also for cooperation," he said. He was referring to the need for central banks to be independent from government interference in setting monetary policy.
"There should be a process under which there can be dialogue between central bank and governments that leads to better combination of policies," he said.
(Source:www.reuters.com)
Lipton stressed that central banks must be open to new ideas to help spur growth as he also shrugged off the view that monetary policy was nearing its limit as a means to revive economies across the globe.
"Central banks have to always be ready to do whatever they can based on the realities they face. The BOJ has been an example of imaginative approaches," Lipton told Reuters on Saturday.
After years of massive asset purchases failed to jolt the economy out of stagnation, the e BOJ last month switched its policy target to interest rates from the pace of money printing.
Among topics of debate at this week's G20 finance leaders' gathering and IMF meetings were fears that central banks have nearly exhausted the limits of what monetary policy can do. Other global central banks which are also struggling to revive growth are closely watching the increasingly radical monetary experiments by the BOJ.
The BOJ pledged to keep the 10-year bond yield around zero percent under a new "yield curve control" framework. The rate of interest that it charges on some excess reserves financial institutions park with the central bank which is 0.1 percent is also maintained by the bank.
Whether it was feasible for a central bank to forcefully cap rates at a set level and whether the BOJ could control such a long end of the curve were just some of the doubts that were voiced by some academics.
The BOJ's yield curve control is "not just possible but a good idea," the IMF now believes, said Lipton.
"I think it's good that the BOJ intensifies its efforts to try to reflate the economy," he said.
"The steps they've taken will give them more flexibility of action and enhance their credibility. It's a step in the right direction," he added.
But to achieve sustainable and balanced economic growth, the flexible fiscal policy and structural reforms - the two other arrows of premier Shinzo Abe's "Abenomics" stimulus policies has to be fired "with vigor" by Japan, Lipton said.
"We can't expect the best outcome relying just on monetary policy," he said. "Combining the three-arrow approach with a stronger focus on boosting incomes would be one way to take some of the heat off the central bank," he added.
Lipton warned that central banks and governments must ensure they are cooperating - not depending on each other - to help the economy with countries increasingly forced to deploy full-strength fiscal and monetary policies to battle low growth.
"We're for central bank independence but we're also for cooperation," he said. He was referring to the need for central banks to be independent from government interference in setting monetary policy.
"There should be a process under which there can be dialogue between central bank and governments that leads to better combination of policies," he said.
(Source:www.reuters.com)
