Central banks must avoid debt-monetizing stigma

DENVER, Jan 7 (BestGrowthStock) – Central banks must avoid letting
their purchases of government debt be seen as a way to finance
spending, rather than an effort to boost growth, a top Bank of
Japan official said on Friday.

“We must avoid causing problems in national debt
management,” said Kiyohiko Nishimura, deputy governor of the
Bank of Japan, during a presentation at the American Economics
Association. “It is crucial to avoid an impression of
monetization of debt.”

Long-term interest rates could spike if markets feared the
central bank was funding government spending, he said.

The Bank of Japan in October set up a 5 trillion yen ($60
billion) asset buying program to pump more money into the
struggling economy and to peg interest rates virtually at zero
until price stability is in sight.

Japan’s asset purchase program is aimed at reducing risk
aversion in capital markets, Nishimura said.

Other central banks including the U.S. Federal Reserve have
launched programs to buy longer-term government securities in a
bid to boost economic growth when benchmark short term rates
are near zero.

Nishimura said the United States and Japan both experienced
the bursting of asset bubbles as the populations of both
societies are becoming older.

Both countries are adjusting to lower levels of debt after
periods of excess — Japan in the corporate sector, the United
States in the household sector, he said.
(Reporting by Mark Felsenthal; Editing by Bernard Orr)