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BOJ should prioritise achieving price stability, deputy governor says

Shinichi Uchida said the bank should make clear it is not monetising government debt by ensuring that fiscal considerations do not take precedence

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Holograms are displayed on the new Japanese 1,000 yen banknote, at a currency museum of the Bank of Japan, in Tokyo, Japan, on July 3 last year. Photo: Reuters

The Bank of Japan should make clear it is not monetising government debt by ensuring that fiscal considerations do not take precedence over its goal of achieving price stability, Deputy Governor Shinichi Uchida said on Saturday.

Central banks can theoretically print unlimited amounts of money and completely finance government debt, which poses delicate questions around their huge government bond purchases conducted to revive their economies, Uchida said.

Central banks see “monetising”, or directly financing government deficits, as taboo, as doing so risks letting inflation get out of control and potentially eroding their independence.

Such unconventional monetary easing steps taken since the 2008 financial crisis present a challenge for central banks across the globe, he said in a speech.

The BOJ’s monetary easing, for its part, was aimed at achieving its 2 per cent inflation target, and not at funding government debt, Uchida said.

“In considering what constitutes monetary financing or not, the important question is whether monetary policy is compromised by fiscal considerations,” Uchida said.

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