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BOJ Gov. Toshihiko Fukui indicated Monday that he is willing to consider measures such as buying riskier assets from banks to help money flow into the economy, although he added that the central bank must tread lightly.

“At this critical juncture, when we try to shake off deflation, the BOJ needs to a certain degree to take a step forward concerning risk assets to bring forth policy results,” he said during a meeting of the House of Councilors Committee on Financial Affairs. “But a central bank is a bank, not a magic bag of tricks. If it takes on risk far beyond its capital base, the end result will be trouble to fiscal coffers.”

Profits in excess of reserves and dividends at the BOJ are added to the national treasury — roughly 1.5 trillion yen in fiscal 2001 — and make up a sizable contribution at times when tax revenues are falling.

“The BOJ will study how to allocate its capital base, and calculate how to bring about the best and most appropriate policy results,” Fukui said.

To supply healthy currency, all central banks look first to low-risk assets as collateral or purchase targets, he said.

“But there are times . . . like now, when the economy moves largely toward deflation, and when banks and corporations must work in an environment filled with risk,” he said. “The central bank cannot complete its duties just by adhering to one single standard or one set of assets for collateral or purchases.”

Ruling party lawmakers have often urged the central bank to consider buying exchange-traded funds, which are linked to stock market indexes.

But Fukui, in an apparent attempt to temper such requests, said: “I believe there is a bit of an excessive focus on exchange-traded fund purchases as a monetary policy step.”

I have never discussed ETF purchases with (Finance Minister Masajuro) Shiokawa.”

Referring to the war in Iraq, Fukui said: “Even if the war is quickly resolved, we must be especially careful about measuring the effects and after-effects of the war on the real economy. The world economy’s strength is not certain, and Japan’s especially stands on a frail base.”

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