Finance Minister Taro Aso said Tuesday 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 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 the Diet Monday 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 growth as he prepares to choose a new BOJ governor next week.
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 said Tuesday that Abe’s comments referred to buying foreign bonds as a general policy idea that is an option for any country.
Abe plans to nominate a successor to Bank of Japan Gov. 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 said Tuesday. “That should be next week.”
Also Tuesday, both the ruling and opposition parties agreed to scrap a rule under which candidates for official positions that need Diet approval are disqualified if their names are reported by the media in advance.
Shirakawa, who steps down on March 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 in the Diet Tuesday that a sudden increase in prices could spark a rise in long-term bond yields.
Abe’s ruling Liberal Democratic Party has proposed a fund run by the BOJ, the Finance Ministry and private investors to buy foreign bonds. Kazumasa Iwata, a potential candidate to replace Shirakawa, proposed something similar.
Iwata said last year that the BOJ should create a ¥50 trillion fund to buy foreign bonds to combat the strong yen. Iwata is seen as a possible candidate to become BOJ governor.