Bank of Japan governor Masaaki Shirakawa warned on Monday that a long period of very cheap credit in the United States and other developed countries could pose a risk to the world economy.

‘Monetary easing in advanced economies has stimulated capital inflows to emerging economies, boosting economic activity there,’ he added.

If such inflows continue for too long, ‘emerging economies might overheat and experience financial turmoil, triggering a recession’, he told a financial forum.

Several Asian central banks have bought dollars in recent weeks to curb their currencies’ ascent and protect exporters.

The US central bank has kept its benchmark lending rate at a range of zero to 0.25 per cent since last December in an attempt to tackle the worst economic downturn in decades.

The BOJ’s own key lending rate stands at 0.1 per cent and the European Central Bank’s benchmark rate is at 1.0 per cent.

A handful of countries have hiked rates recently, including Australia, but the US Federal Reserve has pledged to maintain official borrowing costs at close to zero for ‘an extended period’.

‘If the continuation of low interest rates leads to a substantial rise in long-term interest rates by raising inflation expectations or by generating expectations for a weak dollar, this may give rise to another problem,’ Mr Shirakawa said.

That is ‘the fiscal burden increases and in turn the need for adjustments in the government’s balance sheet arises’.

Governments and central banks around the world face the tricky task of deciding when to withdraw emergency measures aimed at shoring up their economies in the face of a brutal global slump.

Mr Shirakawa said that assessing corporate balance sheet adjustments in the United States and Europe was ‘a key issue in determining the outlook for the global economy’.

Bank of France governor Christian Noyer, an ECB council member, told the same forum the risk of a deflationary spiral ‘has been considerably reduced’.

‘Indeed, even when instant inflation turned negative in many countries for several months in a row, long-term inflation expectations remained remarkably stable,’ he added.