Japanese Prime Minister Shinzo Abe said that buying foreign bonds would be unnecessary under a new central bank chief, backing away from a policy proposal that may be seen by other nations as an attempt to weaken the yen.
“We decided to consider this in November last year,” Abe said in parliament yesterday, referring to a ruling party proposal to set up a fund to buy foreign bonds. “The need for this will basically disappear once we get the new BOJ [Bank of Japan] governor and deputies in March.”
Avoiding foreign bond purchases would limit tension with the G20, which pledged this week to refrain from targeting exchange rates for competitive purposes. The yen is swinging as investors assess the limits of the economic campaign dubbed “Abenomics,” with the prime minister preparing to choose a new BOJ governor next week.
“This effectively removes foreign bond buying as a policy option for Abe,” said Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting Co in Tokyo. “The G20 statement suggests that aiming to guide the yen lower by verbal intervention or other means such cannot be accepted.”
Japanese Finance Minister Taro Aso said in the same parliamentary session that the government had no intention of buying foreign bonds.
Abe will be accompanied by his top currency official when he visits the US to meet with President Barack Obama, according to officials with knowledge of the matter who asked not to be named because of government policy.
G20 finance chiefs signaled on Saturday that Japan has scope to keep stimulating its stagnant economy as long as policymakers cease publicly advocating a sliding yen that is helping exporters from Toyota Motor Corp to Panasonic Corp.
Abe’s ruling Liberal Democratic Party of Japan last year proposed a fund to buy foreign bonds that would include the Bank of Japan, the Ministry of Finance and private investors.
The prime minister’s push for bolder monetary policy has sent the yen about 13 percent lower against the US dollar in the past three months. Abe will decide his nominee for a successor to BOJ Governor Masaaki Shirakawa next week after his trip to Washington, Chief Cabinet Secretary Yoshihide Suga told reporters on Tuesday. Shirakawa and his deputies step down on March 19.
Shirakawa and his board last month adopted a 2 percent inflation target without a deadline and open-ended asset purchases starting in 2014.
Abe has said that changing the law governing the BOJ remains an option if the central bank’s policies do not produce results.
BOJ board member Yoshihisa Morimoto told reporters yesterday that the central bank would decide whether additional measures were needed after examining the results of its current ￥76 trillion (US$810 billion) asset purchase program.
“This year, we will be implementing unprecedentedly large monetary easing,” Morimoto said during an earlier speech in Kochi, southern Japan.
Japan’s monetary base is the highest among advanced countries at 27 percent of nominal GDP, he said.
“With this wording, Morimoto wants to show that the BOJ is doing enough,” said Mari Iwashita, a bond strategist at SMBC Nikko Securities Inc in Tokyo.