The architect of Japan’s economic resurrection, Heizo Takenaka, called on the Bank of Japan to increase liquidity in money markets immediately, and attacked the economic imbalances that are causing the “yen carry trade”.

The former Financial Services czar said that the momentum towards financial reform in Japan was effectively leaderless. He said that Japan needed to embark on a round of privatisations and accelerate plans to create a near-$1 trillion (£500 billion) “sovereign fund” to manage the country’s vast foreign exchange reserves.

Mr Takenaka also launched a public attack on Shinzo Abe, the Prime Minister. He told business leaders at the World Economic Forum in Dalian that the new cabinet was “old fashioned” and incapable of driving reform.

However, he reserved his strongest attack for the Bank of Japan (BoJ) - a Barclays Capital survey published yesterday found that only 16 per cent of investors said they were “confident” they understood the BoJ’s objectives.

Mr Takenaka told The Times that Japan risks falling back into the mire of deflation and ultra-thin interest rates that will encourage the so-called “carry trade” - the practice of borrowing yen at rock-bottom interest rates to fund investments in other currencies or assets. The yen carry trade is believed to be behind the inflation of many asset bubbles across the globe.

Mr Takenaka said that the only way to end the carry trade was for the BoJ to lead the macroeconomic normalisation of Japan via the mass purchase of government bonds, ending deflation.

His comments come as the BoJ yesterday defied its counterparts in the US and Europe by draining 200 billion yen (£870 million) of liquidity from the financial system.

Times Recommends

• Darling under pressure on record public debt
• Mortgage lending falls 32% as drought deepens
• Oil prices firm after 10% drop to below $130