In order to ensure that the effects of monetary easing fully take hold, the government’s efforts to secure confidence in fiscal sustainability are also essential.
In a situation where the Bank continues to purchase a large amount of JGBs, if the government’s efforts to achieve fiscal consolidation through structural reforms were to weaken or such speculation were to permeate the financial markets – reflecting overly heightened expectations that stability in the bond market will be ensured by the Bank’s JGB purchases – confidence in fiscal sustainability could be undermined and long-term interest rates could rise.