Fiscal policy must play a key role in supporting the nation's economy if overseas risks threaten to derail a fragile recovery, as the central bank has little left in its policy tool kit, a former Bank of Japan executive said on Tuesday.
Kazuo Momma, who retains close contact with current BOJ officials, said it would be best if the central bank refrained from expanding an already massive stimulus for as long as needed, given the rising cost of prolonged easing.
But if the BOJ is forced to address an abrupt yen spike that hurts Japan's export-reliant economy, the only option left would be to push short-term interest rates deeper into negative territory, said Momma, who is now an executive economist at private think tank Mizuho Research Institute.
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