Japan Signals BOJ Won’t Adopt Foreign-Bond Purchases

  • Abe says BOJ buying foreign bonds illegal if FX intervention
  • PM’s comment follows suggestions by economic adviser Hamada

While Bank of Japan Governor Haruhiko Kuroda has indicated an openness to new ideas, at least one measure -- buying foreign bonds -- appears to be off the table as the central bank explores its options for monetary stimulus.

Prime Minister Shinzo Abe told reporters at the close of a Group of 20 meeting in Hangzhou, China, late on Monday that such purchases are illegal under the Bank of Japan Law if they are meant as a form of currency intervention.

Abe’s comments follow suggestions by one of his economic advisers, Koichi Hamada, that the BOJ could buy foreign bonds to help weaken the yen, even though U.S. officials would probably object. Hamada also noted that Japan’s finance ministry has the right to intervene in currency markets if it sees the need.

A weaker yen has been a key, though largely unstated, goal of more than three years of unprecedented monetary stimulus under Kuroda. The currency has strengthened by about 16 percent this year, though, undermining BOJ policy and eroding its benefits for the Japanese economy.

Faced with falling inflation and expectations, the BOJ said in July that it would undertake a "comprehensive assessment" of its stimulus program ahead of its policy meeting Sept. 20-21. In a speech Monday, Kuroda indicated a willingness to add stimulus, including through new measures.

In an effort to generate 2 percent inflation, the BOJ is currently buying about 80 trillion yen of Japanese government bonds every year. Economists have questioned whether that pace can be sustained.

Abe didn’t comment Monday on the yen’s current exchange rate. He expressed confidence in Kuroda’s methods and said the government would take firm action on foreign-exchange if necessary.

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