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BOJ Should Be Allowed $643 Billion Fund to Buy Foreign Bonds, Iwata Says

Japan’s finance minister should allow the central bank to create a 50-trillion yen ($643 billion) fund to buy foreign bonds to combat the yen’s gains, a former Bank of Japan deputy governor said.

“Everything will be solved once the finance minister says okay,” Kazumasa Iwata, 65, said in an interview in Tokyo yesterday. As a member of a government panel on national strategy, Iwata proposed the facility in October, an idea Finance Minister Jun Azumi signaled he was reluctant to embrace because it would be equivalent to currency intervention, which is dictated by his ministry.

BOJ law states any buying or selling of currency to stabilize currency markets requires the finance minister’s permission and doesn’t forbid the purchase of foreign bonds, said Iwata, who served as a deputy at the BOJ from 2003-2008. Authorities intervened by selling the yen at least three times last year, efforts that failed to curb the yen’s advance.

“I don’t think buying foreign bonds, even with 50 trillion yen, can change the currency market trend,” saidTohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. and the most-accurate forecaster for the yen’s level against the dollar last year. “The market is like a big river and the purchase would be equivalent to trying to reverse the current by throwing a bucket of water at it.”

Using the fund to buy bonds from the European Financial Stability Facility would also help authorities mitigate the yen’s advance against the euro, he said. The Finance Ministry has been tapping euros in its foreign-exchange reserves to buy EFSF bonds, meaning the purchases don’t affect the yen’s exchange rate against the joint currency.

Iwata, currently president of thinktank Japan Center for Economic Reserach, said even companies like Toyota Motor Corp., which has built up a tolerance to an appreciating currency over the years, has been “screaming” about the yen, which rose to a postwar high of 75.35 against the dollar in October.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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