Tokyo, March 20 (Bloomberg) -- Bank of Japan Governor Toshihiko Fukui said he sees no reason to buy foreign bonds now, though he didn't rule out purchases later as he looks for new ways to pump money into the world's No. 2 economy. ``I don't take the position that we should place priority on foreign bond purchases, although I don't exclude the option,'' Fukui said at a press conference after his inauguration today to a five-year term to succeed Masaru Hayami. Fukui, a former Bank of Japan deputy governor, is under pressure to pull Japan's economy from a 12-year slump and shield it from the effects of falling share prices and the U.S. attack on Iraq.
``He really has to demonstrate that he's going to do something different or something dramatic,'' said Alex Muromcew, who helps manage $600 million in stocks globally for Loomis Sayles & Co. in San Francisco. Some ruling Liberal Democratic Party legislators are urging the central bank to start purchasing foreign-currency denominated bonds from lenders and provide more yens to the economy. The step will also help stem the currency's gain, which hurt exporters' profits, and raise prices of imported consumer goods, they say. Hayami rejected the proposal. The central bank needs to make sure that its actions don't encroach on the authority of the finance ministry, which is in charge of foreign-exchange policy, Fukui said. Toshiro Muto and Kazumasa Iwata, the bank's new deputy governors, also said the bank must take into consideration the impact on the yen if it starts to buy foreign bonds.
Widen the Range
The central bank needs to consider widening the range of assets it buys to inject money into the economy, including exchange-traded funds, which is an index-based investment security, Fukui said. Still, he said the central bank doesnЖt have a large capital and it needs to consider carefully buying assets which has more credit risks than government bonds. The bank shouldn't buy assets just to lift their prices, he said.
Fukui said he hasn't decided whether the central bank should hold an emergency policy board meeting to deal with the possible economic impact of the war in Iraq before policy makers will meet at a next regular board meeting on April 7-8. So far financial markets are calm probably because traders and investors expect the war will be over in a short-term, he said. Even so, the central bank will need to monitor the risk financial markets get volatile in case war prolongs, he said. ``We will try to implement timely actions,'' he said, adding the Japanese economy is vulnerable to ''external shocks.''
Injection
The bank today injected an extra 1 trillion yen ($8.3 billon) into the banking system and made as much as 24 trillion yen available to lenders. That's 4 trillion yen more than the bank's current target of such reserves. The central bank is also under political pressure to expand its government bond purchases from lenders. Muto, who is a former vice finance minister, said there's no need for the central bank to purchase new bonds directly from the government. Muto also said monetary policy alone can't stop the country's price declines. Iwata said the central bank should set a concrete target for prices to show its policy goal more explicitly and he hopes the bank's policy makers will get closer to such a goal at an April board meeting. //www.quote.bloomberg.com