BoJ policy welcome for world growth: IMF's Lagarde

Sun Apr 7, 2013 11:58am EDT
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By Koh Gui Qing

BOAO, China (Reuters) - The head of the International Monetary Fund hailed Japan's unprecedented monetary policy boost this week as a welcome support for a world economy that she said has improved from a year ago.

Christine Lagarde said on Sunday the radical $1.4 trillion stimulus from the Bank of Japan (BoJ) would help strengthen the advanced economies, saying growth in countries such as the United States was gaining speed.

But without referring specifically to Japan, Lagarde warned policymakers against thinking that super-loose monetary policy alone could do the heavy lifting in reviving economies, when growth may instead be stifled by unhealthy private and public finances.

"Monetary policies, including unconventional measures, have helped prop up the advanced economies, and in turn, global growth," Christine Lagarde told a forum in south China.

"The reforms just announced by the Bank of Japan are another welcome step in this direction," she said. "There is, however, a limit to how effectively monetary policy can continue to shoulder the lion's share of this effort."

Central banks still need to heed broken balance sheets that impede lending and plan for and guard against uncertainties arising from any policy change, the IMF chief said.

Japan stunned investors on Thursday by unleashing the world's most intense burst of monetary stimulus, which will pump $1.4 trillion into its economy in under two years. It hopes the shock therapy will end two decades of stagnation.

But the move is a huge gamble. It heavily exposes the BoJ to Japan's mountain of public debt and carries the potential for big losses if inflation spikes and investors lose faith in its viability.   Continued...

International Monetary Fund (IMF) executive director Christine Lagarde attends a news conference at the end of a Eurogroup meeting at the European Council building in Brussels, March 25, 2013. REUTERS/Sebastien Pirlet