Prime Minister Junichiro Koizumi said he believes both monetary and fiscal policy are near the limits of their effectiveness, citing the near-zero short-term rates and the government's already large borrowings.
"The government's fiscal, as well monetary policy, are near their limits in terms of their impact," Koizumi told a Lower House parliamentary budget committee.
"The government has so much borrowings that it cannot issue bonds anymore, while monetary policy is near the limit of its effectiveness because zero interest rates are already prevailing," he said. "If the government continues to increase its issuance of bonds, it will cause adverse effects on the economy, inflicting negative effects on interest rates," he said.