Aso Says Japanese Government Not Planning Foreign Bond Buys

Japanese Finance Minister Taro Aso said the government has no intention of buying foreign bonds through a fund with the Bank of Japan, 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 Prime Minister Shinzo Abe, who told 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 dollar at 5:05 p.m. in Tokyo, while the Nikkei 225 Stock Average closed 0.3 percent lower.

The Group of 20’s position on currencies could make it difficult for the BOJ to buy foreign bonds, as the policy could be interpreted as a direct attempt to weaken the yen. G-20 finance chiefs this week pledged to refrain from targeting exchange rates for competitive purposes.

Economy Minister Akira Amari told reporters today that Abe’s comments referred to buying foreign bonds as a general policy idea that is available to any country.

Shirakawa’s Successor

Abe will decide his nominee for a successor to Bank of Japan Governor Masaaki Shirakawa next week, after meeting with President Barack Obama in Washington.

“Once the summit is over, he will consider the BOJ governor candidates,” Chief Cabinet Secretary Yoshihide Suga told reporters today. “That should be next week.”

Shirakawa, who steps down on Mar. 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 2014. Shirakawa said today 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. 21-22 meeting released today by the central bank showed.

Sato, Kiuchi

Takehiro Sato and Takahide Kiuchi said that 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 yen ($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.