Chief Cabinet Secretary Hiromu Nonaka urged the central bank Monday to step up efforts within the week to stop the rise in interest rates through such means as buying government bonds from the market.

The government’s chief spokesman, however, remained cautious about the Bank of Japan underwriting newly issued government bonds as a way to ensure the stability of long-term interest rates, saying the BOJ should first consider buying them from the market. Executives of the BOJ and the Finance Ministry, including Finance Minister Kiichi Miyazawa, have reiterated that the BOJ should not underwrite newly issued government bonds.

There is a growing concern in the financial market that the 31.05 trillion yen worth of new government bonds to be issued in fiscal 1999 may be too much for the market to absorb smoothly.

Speaking at a regular news conference Monday, Nonaka said the BOJ should be responsible for hammering out measures to overcome the current difficult economic condition. “I hope discussions (on the issue) will take place within the BOJ by the end of this week,” he said.

Nonaka also said it had the option of asking the U.S. to purchase more Japanese government bonds, referring to the fact that Japan had purchased a huge amount of U.S. government bonds when the U.S. was suffering from economic doldrums in the 1980s.

Meanwhile, Vice Finance Minister Koji Tanami said Monday that it is entirely up to the BOJ whether it will buy more of the government bonds already in circulation to lower long-term interest rates. “We have to draw the line … the issue concerns the BOJ’s autonomy,” Tanami told a regular news conference. “It is the kind of thing that should be discussed by the bank’s policy board.”

Tanami was obviously cautious not to give the impression that the Finance Ministry is putting pressure on the central bank, whose independence from the government is guaranteed under the BOJ law. Monetary policy is supposed to be in the hands of the bank. But he added that monetary policy must of course be determined by comprehensive consideration of various economic factors, such as the state of the economy and developments in financial markets.

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