/www.bloomberg.com/ By Mayumi Otsuma
Tokyo, March 6 (Bloomberg) -- The Bank of Japan may be able to temporarily scrap its self-imposed limit on purchases of government bonds to boost the economy, Finance Minister Masajuro Shiokawa said.
``As an emergency measure, I believe it may be possible for the bank to take the step,'' Shiokawa told a committee of the upper house of parliament. ``However, the central bank should make its own decision.''
Shiokawa's remarks put renewed pressure on the central bank to pump more money into the world's No. 2 economy as Toshihiko Fukui prepares to take over as governor. Policymakers left monthly bond purchases unchanged at 1.2 trillion yen ($10.2 billion) yesterday in their last meeting under Governor Masaru Hayami.
Buying government bonds is one of the few tools left to the central bank to reverse an almost five-year slide in consumer prices after it cut interest rates almost to zero in March 2001. Prices will continue to fall and the economy has stalled, the central bank said today in a report, while keeping its assessment of the economy unchanged for a fourth month.
The central bank limits its holdings of government bonds to the amount of paper money in circulation, now about 70 trillion yen. The bank, which owns 58 trillion yen of Japanese government bonds, would reach its limit in October if it increased monthly purchases to 2 trillion yen, Shiokawa said today.
The central bank's limit ``isn't decided by law,'' Shiokawa said. ``I would like to closely consult with the bank about the issue.''
Takayoshi Taniguchi, senior vice minister of finance, attended yesterday's policy board meeting and urged the bank scrap the limit temporarily and raise monthly purchases to 2 trillion yen.
`Positive'
Fukui, a former deputy central bank governor, has indicated he's in no hurry to increase government bond purchases. He may succumb to government pressure within a few months of his inauguration on March 20, some analysts said.
``The central bank may increase its monthly bond purchases to about 1.5 trillion yen and may scrap its bond limit,'' said Hiroyuki Kubota, a fixed-income analyst at RP Tech Inc., which operates an online chat facility for investors and traders. ``That may be positive for bonds.''
Japanese bonds have rallied since Fukui was nominated, pushing down the yield of the benchmark 10-year government bond to a record 0.74 percent Tuesday.
The yield on No. 247 bond, which carries a 0.8 percent coupon and matures in 2013, fell half a basis point to 0.765 percent at 4:30 p.m. in Tokyo. A basis point is 0.01 percentage point.
Fukui has damped speculation the bank will adopt an inflation target, which aims to push up prices by pumping money into the banking system. An inflation target isn't ``a magic wand,'' he said last week. Rising prices would reduce the value of debt's fixed payments.
The Japanese government wants the central bank to step up bond purchases so it can finance a growing budget deficit without driving up yields. The government needs to sell more than 100 trillion yen in bonds a year to raise new money and roll over existing debt.