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BOJ Shouldn’t Buy Foreign Bonds, Ex-MOF’s Utsumi Says

BOJ Shouldn’t Buy Foreign-Currency Bonds, EX-MOF’s Utsumi Says
The Bank of Japan headquarters in Tokyo. The Bank of Japan should reject calls for it to buy foreign currency bonds to weaken the yen because such a move would hurt its independence, said Makoto Utsumi, a former top currency official. Photographer: Tomohiro Ohsumi/Bloomberg

The Bank of Japan should reject calls for it to buy foreign currency bonds to weaken the yen because such a move would hurt its independence, said Makoto Utsumi, a former top currency official.

Such purchases would be “akin to currency intervention and wouldn’t be in the bank’s realm of authority,” said Utsumi, 78, the former vice finance minister for international affairs and now president of Japan Credit Rating Agency Ltd. “We’re not in a situation where we need to blur that distinction.”

Signs of a global slowdown have boosted the yen’s haven appeal, sending it to an 11-year high versus the euro this month. It was at 78.12 per dollar as of 9:26 a.m. in Tokyo, less than 4 percent from the postwar record of 75.35 on Oct. 31. Former BOJ Deputy Governor Kazumasa Iwata and Takehiro Sato, who was appointed to the central bank’s policy board last week, have called for the bank to weigh buying foreign-currency bonds.

Current Deputy Governor Hirohide Yamaguchi on July 25 signaled the BOJ isn’t considering such purchases, saying that doing so to weaken the yen would be against the central bank law, which says that the government dictates currency policy.

The currency’s strength doesn’t reflect the nation’s economic fundamentals, and is rather a result of investor flight to the least-worst alternative, Utsumi said in an interview on July 27.

The yen tends to appreciate during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. On the downside, a stronger currency diminishes overseas profits for domestic companies.

‘Orderly’ Markets

Finance Minister Jun Azumi told reporters in Tokyo today he wouldn’t rule out any measures to counter what he called “one-sided” moves in the yen.

The last time Japan sold its currency was Nov. 4, capping 14.3 trillion yen ($183 billion) in intervention operations in 2011, the third-largest yearly amount on record, according to the Ministry of Finance. The U.S. Treasury Department in December criticized Japan for selling its currency in what it described as “orderly” market conditions last year.

Absent sudden market shocks, the Bank of Japan is best off steering clear of the politicized topic of currency intervention, which should be handled by the government through special financial reserves, said Utsumi.

“In the market, people think we’re unlikely to see another big move up in the yen,” Utsumi said. A sharp weakening “would be worrisome,” as it would undermine the benefits of a stronger currency, such as cheaper energy imports, he said.

Europe’s worsening debt woes and signs of weakness in the U.S. economy have bolstered demand for the yen. It appreciated 5.9 percent in the past three months, the best performance among 10 developed market currencies tracked by Bloomberg Correlation-Weighted Indexes.

“It’s questionable for how long the yen will stay strong,” Utsumi said. “The short term is one thing -- going forward the yen’s strength will be corrected.”

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