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Structural reforms a must to support BOJ policy

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Bank of Japan Gov. Haruhiko Kuroda speaks to reporters Wednesday after the policy meeting.   © Reuters

TOKYO -- The Bank of Japan has been forced to shift its monetary focus from quantity to interest rates in the face of persistent deflationary pressures. But a looming liquidity crunch in the Japanese bond market is making the status quo less tenable by the day, meaning that structural economic reforms from the government will need to complement the easy-money policy.

"We can't just sit back and wait [for the bond-purchasing program] to hit the ceiling," a top BOJ official said right after the central bank announced in July its plans for a comprehensive assessment. The expansion of the monetary base through the bulk purchasing of Japanese government bonds is thought to be approaching its limits, and the belief that a modified approach would be necessary has gained currency at the central bank.

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