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The Bank of Japan will not risk worsening its balance sheet by increasing its outright purchases of government bonds or by raising its purchases of banks’ shareholdings, BOJ Gov. Masaru Hayami said Tuesday.

Hayami’s remarks come amid mounting calls from politicians for the BOJ to step up its reflationary policies to prop up the stagnant economy.

“If long-term interest rates increase by 1 percent, the BOJ would lose 1 trillion yen,” Hayami said at a regular news conference. “Increasing government bond holdings is rather at odds with the rules of fiscal health, and such action is not necessary at this time.

“The BOJ is now the world’s largest central bank, with assets equivalent to 25 percent of gross domestic product.”

The BOJ’s outright purchases of government bonds currently stand at 1.2 trillion yen per month, with the central bank presently holding 83.5 trillion yen in government debt. These purchases have lifted the BOJ’s assets to 125 trillion yen — or 25 percent of nominal gross domestic product.

Hayami, whose term ends next month, also said the BOJ has no intention of increasing its purchases of bank-held shares beyond the 2 trillion yen level or buying more of other stocks.

“I don’t think it’s wise to hold risky assets,” Hayami said. “We aim to sell banks’ stockholdings five years after they’re purchased, in line with the economic situation. We do not at all intend to buy other stocks.”

Mum on BOJ successor

Prime Minister Junichiro Koizumi declined Tuesday to clearly state whether he has chosen the next Bank of Japan governor, but Chief Cabinet Secretary Yasuo Fukuda indicated he is near a final decision.

“I haven’t decided (on a successor to Gov. Masaru Hayami) yet,” Koizumi told reporters at his office. But he added, “I cannot comment even if I have made up my mind.”

Earlier in the day, Fukuda, the top government spokesman, told reporters, “We are working (to appoint Hayami’s successor) by keeping in mind” that the government needs to give the Diet the successor’s name soon.

Fukuda said the government aims to allow the Diet to screen the appointment for a month. Hayami’s five-year term ends March 19.

Asked if he has already told the ruling parties the person he plans to name, Koizumi responded in the negative.

Fukuda suggested Koizumi will probably consult soon with Finance Minister Masajuro Shiokawa about the appointment.

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