Japanese Prime Minister Shinzo Abe said that buying foreign bonds will 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 today, 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 governor and deputies in March.”
Avoiding foreign bond purchases would limit tension with Group of 20 nations that 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 G-20 statement suggests that aiming to guide the yen lower by verbal intervention or other means such cannot be accepted.”
The yen rose 0.3 percent to 93.26 per dollar at 4:35 p.m. today in Tokyo after earlier falling as much as 0.3 percent. The Nikkei 225 Stock Average closed 0.8 percent higher.
Finance Minister Taro Aso said in the same parliamentary session today that the government has no intention to buy foreign bonds.
Abe will be accompanied by his top currency official when he visits the U.S. to meet with President Barack Obama, according to officials with knowledge of the matter who asked not to be named because of government policy.
G-20 finance chiefs signaled on Feb. 16 that Japan has scope to keep stimulating its stagnant economy as long as policy makers cease publicly advocating a sliding yen that’s 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 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 yesterday. Shirakawa and his deputies step down on Mar. 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 don’t produce results.
BOJ board member Yoshihisa Morimoto told reporters today that the central bank will decide whether additional measures are needed after examining the results of its current 76 trillion yen 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 gross domestic product, 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.
Kikuo Iwata, a professor of economics at Gakushuin University in Tokyo and a potential candidate to replace Shirakawa, said today that the BOJ isn’t doing enough to end deflation and that it should buy government bonds with longer maturities.
“I have to doubt if they are really serious,” about achieving the 2 percent price target, he said at a seminar in Tokyo.
Iwata warned that Abe risks a reversal in the yen if his nominee for BOJ governor disappoints the market.
The currency will be at 92 per dollar this quarter and 95 by the end of the year, according to the median forecast of economists surveyed by Bloomberg News. That may help to spur economic growth after three quarters of contraction through December, with a separate survey showing that gross domestic product will probably rise 1.4 percent this quarter.
Still, Westpac Banking Corp., the most-accurate foreign- exchange forecaster in the fourth quarter, is betting that the yen will be at 80 per dollar by the end of this year as it sees the central bank struggling to satisfy investors.
Potential candidates for BOJ governor cited by analysts and local media reflect a range of policy outcomes. Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Governor Kazumasa Iwata have urged more expansive easing. Toshiro Muto warned of the dangers of prolonged loose policy when he was deputy governor five years ago even as he now says his views have changed.
The Yomiuri newspaper reported today that Muto may be removed from the government’s list of candidates, without saying where it got the information.
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