Politicians and economists have increased their calls on the Bank of Japan to buy foreign bonds to stem the appreciation of the yen and lift the economy out of deflation.
In a government policy meeting last October, Kazumasa Iwata, previously a BOJ deputy governor and now president of the Japan Center for Economic Research, proposed that the central bank buy ¥50 trillion worth of foreign bonds. Since then, support for the idea has spread among politicians, including Democratic Party of Japan policy chief Seiji Maehara.
The proposal appears to have gained even further ground with Takehiro Sato, who became a BOJ Policy Board member in July, backing it.
If it is to buy foreign bonds, the BOJ has to sell yen for foreign currencies such as the dollar, weakening the Japanese currency, whose appreciation over the past years has hurt exporters' competitiveness.
Such an idea was mooted in the early 2000s when the BOJ was pumping generous liquidity into the banking system in a move generally known as quantitative easing to jump-start the flagging economy. But the Finance Ministry struck it down, asserting that what effectively is currency market intervention is the ministry's exclusive preserve.
The chorus of calls for foreign bond purchases by the BOJ has regained its vehemence because the bank's current monetary easing measures, including purchases of Japanese government bonds, have not been effective enough to beat deflation or weaken the yen.
Finance Minister Jun Azumi is against the idea.
"It is not appropriate for the BOJ to buy foreign currency-denominated assets instead of intervening in foreign exchange markets," he said, reiterating the ministry's stance that it should have the last word on any currency market intervention measure.
BOJ Gov. Masaaki Shirakawa also argues that buying foreign bonds is not feasible under current law.