BOJ's Kuroda warns of potential dangers from excessive credit growth

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Thursday warned of the potential dangers of heavy money printing, saying that financial bubbles, when accompanied by excessive lending by commercial banks, tend to trigger financial crises.

Bank of Japan Governor Haruhiko Kuroda attends a G20 symposium on demographic change in Tokyo, Japan January 17, 2019. REUTERS/Issei Kato

Speaking ahead of the Group of 20 finance leaders’ gathering in the southern Japan city of Fukuoka this weekend, Kuroda said the G20 members must focus on implementing the financial reforms they launched in 2009 to prevent another financial crisis.

“Financial bubbles tend to associate with financial crises when accompanied by excessive credit creation,” Kuroda said in a speech to a symposium hosted by the Institute of International Finance in Tokyo.

“Our experience of Japan’s crisis in the late 1990s and of the last global financial crisis in the late 2000s reminds us that the most important role of financial regulation and supervision is to address market failures in order to prevent financial crises,” he added.

Major central banks, including the BOJ, have struggled to dial back their massive crisis-mode stimulus programmes as Sino-U.S. trade tensions and slowing global demand cloud the outlook for their economies.

Some market players and academics worry that prolonged, heavy money printing by the central banks could sow the seeds of a bubble by prompting financial institutions to take on excessive risk.

“Now that the regulatory reform agenda is nearly complete, we must turn our focus onto the full, timely, and consistent implementation of the agreed reform in order to achieve the goal of maintaining global financial stability,” Kuroda said.

Kuroda also said central banks must be mindful of the risk that the rapid evolution of information technology, such as the widening use of smartphones, could magnify market failures by concentrating data to a small number of financial institutions.

“The degree of market failures could be magnified by our current evolution in information and communications technology,” he said.

“Although the key role of financial regulation and supervision remains unchanged, we should leverage innovative technology in financial supervision,” Kuroda said.

Financial innovation and the change it causes on the role regulators play are among key topics of debate at the two-day meeting of G20 finance ministers and central bank heads, which kicks off on Saturday.

Reporting by Leika Kihara; Editing by Jacqueline Wong & Kim Coghill