BOJ's Kuroda calls for vigilance on financial imbalance risk

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Tuesday urged policymakers to be vigilant for new financial imbalances and banking-sector woes that may emerge from the deepening economic pain of the coronavirus pandemic.

With swift and comprehensive coordination, central banks and governments across the globe have successfully prevented the economic shock caused by COVID-19 from triggering a financial crisis, Kuroda said.

Given "considerable uncertainty" on the economic outlook, policymakers must maintain their current stimulus programmes, Kuroda told a virtual conference co-hosted by the International Monetary Fund and the University of Tokyo.

After weathering a cash crunch, companies and households may now face a slump in profit and revenue that could inflict fresh pain on the banking sector, he added.

"In the long run, the risk of new financial imbalances must also be borne in mind," Kuroda said, noting that banks' excess debt had triggered a prolonged economic downturn during Japan's domestic banking crisis in the late 1990s.

Governments and central banks worldwide, including the BOJ, have deployed a heavy dose of stimulus and flooded markets with cash to cushion the economic blow caused by COVID-19.

While analysts see such a move as a necessary step in the near term, some warn that keeping the extraordinary support in place for too long could cause market distortions and excess risk-taking.

(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Kevin Liffey)