SEOUL, May 27: The head of the Japan’s central bank said on Friday that Japan’s painstaking economic reforms are paying off but its debt-burdened public sector still needs to be overhauled. Bank of Japan Governor Toshihiko Fukui also warned that Japan’s “painful experience” showed that central banks should keep a close watch on asset prices, which he said can rise separately from general prices and lead to a bubble.

“After 13 years of policy struggles, progress has begun to materialize in unwinding past excesses,” Fukui said in a keynote speech at an international conference on central bankers roles.

“Major banks are now in much better shape. Corporations are posting brighter earnings outcome than ever, and household incomes have begun to improve,” he said.

Fukui said the Bank of Japan helped offset deflationary pressure from structural adjustments in the corporate and personal sectors by keeping the official discount rate at low or zero levels since July 1991.

He said the bank also provided ample liquidity to ease a credit crunch.

He noted that in April this year, Japan removed its blanket deposit guarantee, an emergency measure aimed at avoiding bank runs, adding that Japan’s economy had passed a “critical milestone.”

“From the medium-term perspective, Japan needs to carry out the structural overhaul of its public sector too,” he said.

“For instance, the legacy of an activist fiscal policy through the 1990s is still with us, as shown by the huge public debt nearing 160 percent of our GDP,” he said. Re-designing Japan’s social security system is another policy imperative for the aging country, Fukui said.

“No doubt, these are large challenges,” he added.—AFP