Finance Minister Kiichi Miyazawa reiterated Thursday that he thinks it’s unnecessary for the Bank of Japan to underwrite newly issued government bonds to ensure the stability of long-term interest rates.
“Although a variety of proposals have been put forward, my honest feeling is that we don’t have to implement such things,” he told a session of the Lower House Budget Committee. Miyazawa made the remark in response to mounting concerns that the 31.05 trillion yen in new government bonds to be issued in fiscal 1999 may be too much for the market to absorb smoothly.
BOJ Gov. Masaru Hayami flatly denied the possibility that the central bank will underwrite new issues of government bonds. “There is no such option at all,” he told the Upper House panel on fiscal and financial affairs, citing possible adverse effects, like rampant inflation. “It could also cause the credit rating of government bonds to be cut and a further rise in long-term interest rates,” Hayami said.
Some legislators from the Liberal Democratic Party are calling on the BOJ to underwrite the forthcoming government bond issues, and U.S. Treasury Secretary Robert Rubin later expressed support for the idea in Washington. A surge in long-term interest rates is seen as a threat to the economy, since that would most likely push the yen up and stock prices down.
Miyazawa told the Lower House committee that he still believes long-term interest rates should be left to market forces.