The Democratic Party of Japan is considering introducing special taxes and issuing “disaster bonds” underwritten by the Bank of Japan to secure funds to help Tohoku rebuild from the March 11 earthquake and tsunami, party sources said Friday.
Members of the Cabinet and BOJ policymakers expressed concerns that some politicians are trying to force the central bank to purchase long-term debt from the Finance Ministry — an action that is basically prohibited by law. Doing so might cause Japan’s fiscal health to deteriorate further and damage public trust in the currency.
“It is impossible and I will never have (the BOJ) do such a thing,” economic and fiscal policy minister Kaoru Yosano said earlier in the day, trying to silence calls by some lawmakers for the BOJ to print money more flexibly under the government initiative.
“Taking actions that ignore fiscal discipline would lead (Japan) to lose its international credibility,” Yosano said, suggesting the government might suffer a sharp rise in interest rates if it recklessly issues debt.
Finance Minister Yoshihiko Noda denied such a plan is even being considered.
“It is not the case that the government is studying” the option, Noda told reporters.
BOJ Gov. Masaaki Shirakawa said past experience indicates that such a policy would “set off raginginflation . . . (and) damage public trust in the currency.”
The government of Prime Minister Naoto Kan is preparing to submit a bill to the Diet this month for policy measures to help accelerate the rebuilding effort. A draft of the bill prepared by Kan’s party mentions the special taxes.
There is opposition to any move that would increase the burden on disaster victims and concerns remain that increasing taxes will also hurt economic growth, the sources said, adding it is uncertain whether the party can a consensus on the issue.
The BOJ currently purchases long-term government bonds from financial institutions in markets under certain rules as part of its daily operations to adjust monetary conditions.
The Public Finance Act allows the bank to underwrite sovereign debt only in exceptional cases, such as buying financing bills to provide short-term money for intervening in the currency markets.
“Once introduced, (the underwriting) could lead to overissuance (of debt), triggering inflation and making people wary of using bank notes,” Sayuri Shirai, who joined the BOJ Policy Board on Friday, said at a news conference.
Most of the world’s other major central banks are also prohibited from underwriting government debt, said Shirai, who formerly worked as an economist at the International Monetary Fund. “We need to properly take into consideration such an international consensus.”
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