Japanese Minister of Finance Taro Aso said the government has no intention of buying foreign bonds through a fund with the Bank of Japan (BOJ), comments that caused the yen to strengthen.
“We don’t intend to buy foreign bonds,” Aso told reporters in Tokyo, when asked if such a fund is planned.
He also said that the government is not considering any immediate change to the law governing the BOJ.
Aso’s remarks contrast with those of Japanese Prime Minister Shinzo Abe, who told the Japanese parliament yesterday that buying foreign bonds “exists as one idea” for monetary policy and the BOJ law may be revised if the central bank fails to get results. Investors are trying to assess Abe’s commitment to ending deflation and reviving economic growth as he prepares to choose a new BOJ governor next week.
The yen extended its first gain in three days after Aso later said in parliament that the currency’s “unexpected” fall was the result of the government’s economic policies. The comments came after he said on Feb. 8 that the yen’s fall was too fast.
The currency was 0.5 percent higher at ￥93.49 per US dollar at 5:05pm in Tokyo yesterday, while the Nikkei 225 Stock Average closed 0.3 percent lower.
The G20’s position on currencies could make it difficult for the BOJ to buy foreign bonds, because the policy could be interpreted as a direct attempt to weaken the yen. G20 finance ministers this week pledged to refrain from targeting exchange rates for competitive purposes.
Japanese Minister of Economy, Trade and Industry Akira Amari told reporters yesterday that Abe’s comments referred to buying foreign bonds as a general policy idea that is available to any country.
Abe will decide his nominee for a successor to Bank of Japan Governor Masaaki Shirakawa next week, after meeting with US President Barack Obama in Washington.
“Once the summit is over, he will consider the BOJ governor candidates,” Japanese Chief Cabinet Secretary Yoshihide Suga told reporters yesterday. “That should be next week.”
Shirakawa, who steps down on March 19, has said that buying foreign bonds would amount to currency intervention, which is the responsibility of the finance minister.
The BOJ last month agreed to a 2 percent inflation target and to make open-ended asset purchases from next year.
Shirakawa said yesterday in parliament that a sudden increase in prices could spark a rise in long-term bond yields.
Two policy board members dissented from the adoption of the target, minutes of the Jan. 21 to Jan. 22 meeting released yesterday by the central bank showed.
Takehiro Sato and Takahide Kiuchi said 2 percent inflation would not be consistent with price stability, adding that the central bank is unlikely to influence inflation expectations just by setting a target.
Abe’s ruling Liberal Democratic Party has proposed a fund run by the BOJ, the Ministry of Finance and private investors to buy foreign bonds. Kazumasa Iwata, a potential candidate to replace Shirakawa, proposed something similar.
Iwata said in an interview last year that the BOJ should create a ￥50 trillion (US$533 billion) fund to buy foreign bonds to combat the strong yen. Iwata is a possible candidate to become BOJ governor, according to Koichi Hamada, a retired Yale University economics professor who is advising Abe on monetary policy.