A Bank of Japan Policy Board member said Thursday that it is essential for the government to make progress on fiscal consolidation as its efforts will eventually determine the success of the central bank's drastic monetary easing.
The BOJ has been purchasing Japanese government bonds in amounts that substantially exceed that of newly issued JGBs as part of its latest monetary policy, Takehiro Sato said in a speech in Kochi, western Japan.
If concern over the government's commitment to fiscal restoration grows in the markets, that will expand risk premiums in the JGB market, he said.
"However the (central) bank's prescription for a response is limited," Sato said.
The BOJ in late October decided to expand its "quantitative and qualitative easing" stimulus program in a rare split over the decision, with four of the nine members opposing it.
Among newly introduced measures, the central bank raised the purchase of Japanese government bonds from financial institutions so the amount outstanding will rise at an annual pace of about ¥80 trillion, up about ¥30 trillion from the previous target.
Sato, one of the four who voted against the decision, said the additional easing was not necessary because the virtuous cycle of economic activity and prices is being maintained.
Interest rates are already at historical low levels and the effect of the latest stimulus will not be large on economic activity and prices, he said.