Indeed, one of the major factors behind the sluggishness of Japan’s economy during the 1990s was balance sheet adjustment at firms and banks. We fully recognize the gravity of the excessive debt held by firms, especially those in the construction, real estate, and distribution industries, not to mention the non-performing assets held by banks.
Ignazio Visco, Governor of the Bank of Italy, in a recent lecture at the Imperial College in London quoted Curzio Giannini, a brilliant Bank of Italy economist who passed away prematurely nine years ago, who said: “The legitimacy of central banks does not lie in their policy activism, or the ability to generate income, or even […] their efficiency.