Ueda on the role of capital for central banks

At times, he said, the government, from a short-term perspective, can be attracted to excessively easy monetary policy in order to stimulate the economy. Likewise, the fiscal authorities at times want to boost seigniorage through high inflation. The likelihood of the central bank giving in to such political pressures rises if its financial strength deteriorates to the point where it is obliged to seek financial support from the government.

In the case of Japan at present, Ueda concluded, the financial condition of the Bank has not significantly deteriorated, nor does the Bank face an imminent risk of high inflation or the necessity of conducting market operations to curb it. The current policy objective of the Bank is to overcome deflation, an aim it shares with the government.

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Based on a speech given by Kazuo Ueda, Member of the Bank of Japan's Policy Board, at the Fall Meeting of the Japan Society of Monetary Economics, on October 25, 2003.

The Role of Capital for Central Banks