--Japan BOJ Hayami: No intention of direct JGB underwriting
--Japan's Hayami: BOJ must keep prices stable, not inflationary
--BOJ's Hayami: Increased long-term JGB buys may raise interest rates
--Japan BOJ's Hayami indicates not mulling weak-yen policy
--BOJ's Hayami says Japan not in deflationary spiral
--BOJ's Hayami says mkt too small to buy asset-backed CP
--BOJ's Hayami says mkt too small to buy convertible corp bonds
--BOJ's Hayami says sterilized FX intervention more appropriate
--BOJ's Hayami: Desirable for FX levels to reflect econ fundamentals
--BOJ's Hayami says not thinking of weak yen policy --BOJ Hayami says strong currency not against national benefit --MOF's Miyazawa indicates Japan not in deflationary spiral --Japan MOF Miyazawa says economy on recovery path
--Japan MOF Miyazawa says falling prices not normal situation
--Japan MOF's Miyazawa says interest rates abnormally low
--Japan MOF's Miyazawa opposes BOJ direct JGB underwriting

By Stephen Cannon
Tokyo, March 8 (BridgeNews) - Bank of Japan Governor Masaru Hayami and Finance Minister Kiichi Miyazawa said Thursday in parliament that they oppose the idea of having the central bank directly underwrite government bonds. They also agreed that although current price falls are a concern, Japan is not in a deflationary spiral, but Miyazawa stressed a need to determine the cause of stagnating personal consumption.
* * * "The current trend of declining prices isn't good. I don't think price falls are leading to declines in sales and an increase in unemployment like in a textbook. However, the continuing decline in prices is a worry and as politicians we have to wonder why household spending is stagnant," Miyazawa said in the upper house budget committee.
Expressing his views on deflation, Hayami repeated factors such as deregulation and corporate rationalization are pushing down prices but that he doesn't think that a lack of private demand is the cause for price declines at this time. However, he added that current price falls warrant "more careful inspection than before" because of the possibility that price falls may lead to weak demand which may in turn push down prices in the future if the economy deteriorates further.
Also, speaking on price declines, Miyazawa said, "Japan's economy is on a recovery track. Capital spending and corporate activity has recovered as we had hoped, but personal consumption hasn't recovered yet. This is different from the usual pattern of an economic recovery and the biggest issue. I don't really care if you call it deflation or not, prices are falling and it's not normal."
Miyazawa said Wednesday that Japan's economy is in a bad condition, leading to speculation that he has downgraded his assessment of the economy. While this may be true, he still asserts that the economy is moving upward.
Despite Miyazawa's concern for the decline in prices, Hayami said, "It's the responsibility of the Bank of Japan to work to make prices neither inflationary nor deflationary. The Bank of Japan's directive is to keep prices stable. It's our responsibility to make companies and households rest easily in their daily lives."
On the issue of trying to further ease monetary policy through having the Japan's central bank buy long-term government securities directly from the government rather than the usual practice of buying them from secondary markets, both men were negative.
"I have never heard anyone from the (Liberal Democratic) Party say any such thing seriously, rather it's something that is spoken of among scholars. I think as a realistic policy, we shouldn't do it. I'm opposed to it," Miyazawa said. Miyazawa is a senior member of the Liberal Democratic Party.
"Politicians have never requested to me that the Bank of Japan should directly underwrite government bonds. I have no intention of directly underwriting government bonds. It can invite inflation and we shouldn't do it," Hayami chimed in. Turning to why interest rates on Japanese government bonds haven't risen despite a recent downgrade by Standard & Poor's investors rating service, Miyazawa said, "It's a sign that government bonds are extremely popular for the yield to have fallen so low. But it's not something to really get happy about.
From the perspective of the government it's easy to issue government bonds because the coupon rate is so low, but it also shows that private demand for funds is very low or that it's not going into the stock market. However, regardless of what Standard & Poor's or Moody's (Investor Services) says, the reality that (JGBs) are a popular item is stronger. However, I'm not particularly happy about it because it reflects an irregularity in Japan's economy." On the same issue, Hayami said, "Not very many of Japan's government bonds are owned by foreign investors; only about 7%. We need to expand the market and put Japanese government bonds in the international arena. However, I don't think that trust towards Japan's bonds is decreasing at all. It's true that because the amount of personal savings is increasing and borrowers are scarce, banks have no choice but to increase their purchases of government bonds, and I agree with Mr. Miyazawa's opinion on this," speaking after Miyazawa noted this point.
Moody's downgraded Japan's sovereign debt rating last August, Standard & Poor's conducted its downgrade on the sovereign in February. Hayami also denied that his Wednesday comments on a weak-yen policy to boost the economy were meant as an endorsement of such a policy. "The policy of yen weakening exists but I merely meant to explain it as a measure and had no intention of promoting the use of such a policy. Foreign exchange market intervention is under the jurisdiction of the Finance Ministry.
As I noted yesterday, artificially lowering the price of the currency causes import prices to increase and is a barrier to a healthy economy in some ways.
If you think about it there are many problems with such a policy and I meant to speak of it in a negative manner," Hayami said.
"It's desirable for foreign exchange markets to reflect economic fundamentals and move in a stable manner. It's not against the national interest for the currency to strengthen," Hayami added.
For his part, Miyazawa said, "I have absolutely no feeling that foreign exchange markets should be artificially manipulated as a economic stimulus measure."
The U.S. dollar/yen strengthened on Hayami's Wednesday comments and weakened from Hayami's above comments. The dollar/yen stood at 119.47 at 1818 JT. More