The Idea of BOJ Foreign-Debt Buying Just Won't Go AwayBy and
Possible option to counter excessive yen surge: Larry Summers
Viable if not taken as FX intervention: Abe advisor Nakahara
The idea of the Bank of Japan purchasing foreign bonds won’t go away, even after Prime Minister Shinzo Abe damped speculation about the possibility as recently as last month.
From a former U.S. treasury secretary to an adviser to Abe and at least one current central bank board member, the notion keeps coming up in talks among economists and policy makers. Its enduring appeal underscores the desire in Japan to have tools available to curb a resurgence in the yen, and concern that other measures like buying Japanese government bonds are approaching their limits.
The BOJ member sees a foreign-bond purchase program as something worth considering in the future, according to a person familiar with the matter who asked not to be named. Nobuyuki Nakahara, an influential adviser to the prime minister, said in an interview on Sept. 30 that such a program would be fine as long as it is used as monetary policy and isn’t taken as currency intervention.
Lawrence Summers, whose former treasury role required him to stand guard against other nations weakening their currencies for trade advantages, said "it’s something that should be on the table," but maybe not right now.
"I would be very cautious about that in the current configuration," Summers told reporters last week in Tokyo after attending a workshop at the BOJ. "But it should be maintained as a possible idea, particularly in the event of substantially excessive yen appreciation."
During a visit to China for a Group of 20 meeting on Sept. 5, Abe said such purchases would be illegal under the Bank of Japan Law, if they were meant as a form of currency intervention. BOJ Governor Haruhiko Kuroda said on Sept. 21 that Japanese law put the Ministry of Finance in charge of foreign-exchange transactions aimed at stabilizing the market.
Nakahara was an intellectual father of the BOJ’s first attempt at quantitative easing in 2001. As a board member that year he proposed buying foreign bonds. While he was defeated by an 8-1 vote, minutes of the meeting show that four other members showed some sympathy toward his idea.
The BOJ should buy the same amount of such securities on a regular basis so that it’s not seen reacting to specific moves in the foreign-exchange market, but using it for monetary policy, according to Nakahara.
Nakahara insisted that Abe’s remarks only rule out foreign bond buying as a deliberate means of intervening in the currency market, and not as part of regular monetary policy.
“Abe commented that way because he understands the situation precisely,” Nakahara said.