Japan can fund disaster-spending plan without BOJ bond buying, Edano says

April 11, 2011 - 0:0

Japan can fund a spending plan to pay for reconstruction from the March 11 earthquake and tsunami without the Bank of Japan (8301) purchasing government bonds, Chief Cabinet Secretary Yukio Edano said.

Some lawmakers have called for the BOJ to directly purchase bonds, a proposal central bank Governor Masaaki Shirakawa has rejected. Prime Minister Naoto Kan’s government is compiling a spending package this month that Edano last week said could be as much as 4 trillion yen ($47 billion).
“We will secure necessary funding for reconstruction,” Edano said in a roundtable interview on Sunday in Tokyo. “There will be difficulties, but I believe we can secure enough funding without the BOJ underwriting bonds.”
Shirakawa has repeatedly told lawmakers the measure would lead to uncontrolled printing of money, undermining confidence in the yen and Japan’s bond markets. He and his board last month boosted the size of their asset-purchase program by 5 trillion yen, or less than one-tenth the size of the U.S. Federal Reserve’s quantitative easing program.
The law allows for so-called debt monetization by the BOJ in special circumstances with the approval of the Diet. If the central bank starts to underwrite government bonds, it would ultimately “lead to a limitless expansion of currency issuance, spur sharp inflation and yield a big blow to people’s lives” and the economy, as has happened in the past, Shirakawa said last month.
BOJ Credit Program The Bank of Japan on April 7 unveiled a 1 trillion yen effort to channel credit to businesses affected by the quake, a step that may help avert bankruptcies. The disaster in northeastern Japan has left almost 28,000 people dead or missing and another 160,000 homeless.
Japanese bonds last week fell for a third week as gains in stocks and signs of global economic recovery reduced demand for government debt. The yield on the 1.3 percent bond due March 2021 rose four basis points to 1.32 percent last week. The price fell 0.352 yen to 99.824 yen.
The magnitude-9 temblor and tsunami crippled the Fukushima Dai-Ichi nuclear power plant owned by Tokyo Electric Power Co. One month later, Tepco is still using emergency equipment to try to cool damaged reactors. The company is trying to prevent further hydrogen explosions after previous blasts damaged containment structures, releasing radiation into the air and sea.
--------------‘Blank slate’
The government must also consider in the future whether to separate the Nuclear and Industrial Safety Agency from the Ministry of Economy, Trade and Industry to ensure its independence, Edano said. We must approach the issue from a “blank slate,” he said.
Edano, 46, who as chief cabinet secretary is a combination deputy and chief of staff, has been the most prominent member of Kan’s administration since the record temblor struck. In the week after the quake, he appeared as often as five times a day to give televised briefings on the situation, winning fans for his dedication and raising his profile as a possible future prime minister.
He was born in Tochigi Prefecture, which borders the province holding the stricken nuclear reactors in Fukushima. His alma mater is the University of Tohoku in Sendai, a coastal city devastated by the tsunami.
(Source: Bloomberg)