Bank of Japan vice-governor Nakaso Hiroshi said that the continued adoption of ultra-loose policy will bring risks to the market.

(Reuters)

[Financial Channel/Comprehensive Report] Hiroshi Nakaso, former deputy governor of the Bank of Japan (BOJ), said that once the financial crisis is resolved, the central bank must cancel emergency measures to avoid creating moral hazard in the market.

Nakaso said that because the Japanese government has given the market a lot of support during the pandemic, investors believe that when financial markets are unstable, the Bank of Japan will always come to the rescue.

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"Once the financial crisis is over, this 'moral' hazard must be eliminated, although this is easier said than done because it is a paradoxical problem," said Nakaso. "Crisis management is accompanied by the creation of artificial moral hazard. , it shouldn’t last forever.”

Nakaso suggested that the BOJ could redesign the lending mechanism to attract investors at a lower cost in a crisis situation, but when the market normalizes, the cost will be higher.

"Maybe this is something we can revisit as a tool for the next financial crisis," he added.

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