Japanese Finance Minister Taro Aso said the government has no intention of buying foreign bonds through a public-private fund, comments that caused the yen to strengthen.
“We don’t intend to buy foreign bonds,” Aso told reporters in Tokyo, when asked if such a fund is planned. He also said that the government is not considering any immediate change to the law governing the Bank of Japan.
Aso’s remarks contrast with those of Prime Minister Shinzo Abe, who told parliament yesterday that buying foreign bonds “exists as one idea” for monetary policy and the BOJ law may be revised if the central bank fails to get results. Investors are trying to assess Abe’s commitment to ending deflation and reviving growth through more aggressive monetary easing.
The yen climbed from near its lowest since 2010 after Aso’s remarks. The currency was 0.3 percent higher at 93.73 at 9:09 a.m. in Tokyo, while the Nikkei 225 Stock Average was 0.2 percent lower.
The Group of 20’s position on currencies could make it difficult for the BOJ to buy foreign bonds, as the policy could be interpreted as a direct attempt to weaken the yen. G20 finance chiefs this week pledged to refrain from targeting exchange rates for competitive purposes.
Economy Minister Akira Amari told reporters today that Abe’s comments referred to buying foreign bonds as a general policy idea that is available to any country.
BOJ Governor Masaaki Shirakawa, who steps down next month, has said that buying foreign bonds would amount to currency intervention, which is the responsibility of the finance minister.
Abe’s ruling Liberal Democratic Party has proposed a fund run by the BOJ, the Ministry of Finance and private investors to buy foreign bonds. Kazumasa Iwata, a potential candidate to replace Shirakawa, proposed something similar.
Iwata said in an interview last year that the BOJ should create a 50 trillion yen ($533 billion) fund to buy foreign bonds to combat the strong yen. Iwata is a possible candidate to become BOJ governor according to Koichi Hamada, a retired Yale University economics professor who is advising Abe on monetary policy.
