Toshio Miki, a member of the Bank of Japan Policy Board, voiced concern Thursday that this week's terrorist attacks on the United States will have a major negative impact on Japan's financial markets.
The attacks "are likely to bring about a rise in crude-oil prices, a plunge in share prices and a surge in long-term interest rates," he told a news conference in Niigata.
The potential decline in share prices will also lead financial institutions to sell government bonds and eventually raise long-term interest rates, Miki added.
"Financial institutions will be in a state of panic if government bond prices nosedive following a plunge in share prices," he said.
Miki added that financial institutions must receive an injection of public funds as the disposal of nonperforming loans is paramount in securing the stability of Japan's financial system.
With regard to the BOJ's open-market operation, Miki said the central bank needs to consider innovative measures now that it's already extraordinary schemes have become ineffective.
He indicated that the BOJ will be forced to adopt operational schemes using risky assets, such as corporate debentures but did not elaborate on the issue.