RTTNews - Wednesday, Bank of Japan Governor Masaaki Shirakawa said central banks should consider the soundness of their balance sheets and the banks' neutrality perceived by the public, while adopting unorthodox measures.
The effectiveness of monetary policy measures crucially depends on the central bank's credibility, which is partly affected by the soundness of the central bank balance-sheet and central bank's neutrality perceived by the public at large, Shirakawa said in his opening speech at 2009 International Conference hosted by the Institute for Monetary and Economic Studies in Tokyo.
Shirakawa said market participants suddenly lost their confidence and reduced their risk-taking capacity after the burst of the bubble, constraining the effectiveness of monetary policy.
The central bank chief said it is crucially important for a central bank to adequately control the aggregate amount of liquidity in the economy. He added that a central bank should be cautious about the risks of undermining its credibility, which is prerequisite for any policy implementation, while shouldering risks brought by outright purchases of credit instruments.
On May 25, Shirakawa had said economic recovery in Japan and the rest of the world would be mild as removing excesses accumulated over the past several years will take considerable time.
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