Bank of Japan Governor Masaaki Shirakawa on Monday warned against aggressive purchase of government bonds by the central bank.
In a speech to business executives, Shirakawa said if the bank presses on too aggressively with the purchase of financial assets, which has already reached a significant level, could hold down long-term yields temporarily.
However, it could trigger an event that would lead to a jump in such yields as a result of the government bond market being too dependent on the central bank's purchases, central bank chief said in Tokyo.
Such actions would have a significant impact on financial institutions' management as well as jeopardize price stability.
According to Shirakawa, the economy will return to a moderate recovery path in the first half of fiscal 2012 as the pace of recovery in overseas economies picks up.
Further, he reiterated that the bank will continue to examine whether economic activity and prices are moving in the right direction to assess risks including the accumulation of financial imbalances.
Also, central banker said it will continue to make utmost effort to overcome deflation and return to a sustainable growth path with price stability.
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