Bank of Japan Gov. Masaaki Shirakawa said there are limits to what monetary policy can achieve and governments must implement "necessary" reforms to aid the global economy.

"Providing liquidity as 'a lender of last resort' is, in essence, a policy to 'buy time,' " Shirakawa said in a speech late Tuesday at the London School of Economics. "It is essential that the necessary structural reforms take place while time is being bought, as the time that we can buy becomes progressively more expensive."

As Europe's debt crisis prolongs the global economy's recovery from the financial crisis and recession, central banks have followed interest rates to record lows with measures such as bond purchases to boost demand. Shirakawa said that while there's a risk of "diminishing returns" as loose policy is extended, that doesn't reduce the need for central banks to act.