Investing.com - Japan needs both aggressive monetary easing and government structural reform aimed at boosting labor productivity in order to overcome years of deflation and achieve sustained growth, Bank of Japan Deputy Governor Hiroshi Nakaso said Thursday.
"I believe that monetary policy to overcome deflation and the structural reform to raise the potential growth rate must be pursued in tandem to bring Japan's economy back on track toward sustained growth," he told business leaders in southwestern Japan.
"Now that the Bank of Japan has taken monetary easing one step further by introducing QQE (quantitative and qualitative easing) with a negative interest rate, I expect the original third arrow of Abenomics, the growth strategy, to fly higher and faster."
The reflationary policy mix of aggressive easing and increased fiscal spending under Prime Minister Shinzo Abe, who took office in late 2012, has failed so far to raise inflation from zero to a stable 2%, he noted.
"In this sense, looking ahead, structural reform needs to be promoted not only in an economic context but also in a social context, and should focus on developing a productivity-enhancing mechanism and environment," he said. " I strongly expect the government to continue committing to such a structural reform without loosening the reins."