Bank of Japan Governor Masaaki Shirakawa has forecasted that the sluggish economic conditions in the US and Europe are likely to prolong, given the size of excess debt accumulated in the past.
"If we simply look at rough estimates of excess debt, it appears that a lengthy period of adjustment is inevitably required," Shirakawa said in a lecture at the London School of Economics and Political Science yesterday.
He also said that authorities and economists "underestimated" the problems of the sovereign debt crisis in Europe and the housing bubble burst in the United States in 2006, which led to a global financial crisis, indicating that such initial reaction worsened the situation.
The reaction is similar to what was seen in Japan in the early 1990s after its economic bubble burst, Shirakawa said.
"Even at a later stage, when experts agreed on the need for public support for financial institutions, such measures met with opposition from the general public, influenced by lingering effects of the underestimation, which was also seen in the case of Japan," he said.
To overcome the current sluggish economic conditions, Shirakawa noted the importance of boosting the growth potential of individual economies and growth momentum in the global economy as a whole, such as avoiding a rise in protectionism and excessive government intervention.
"Avoiding collateral damage from the bursting of a bubble becomes extremely important," he said.