Reuters: US Dollar Report: UPDATE 1-BOJ dep gov rules out 'Operation Twist' in Japan

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UPDATE 1-BOJ dep gov rules out 'Operation Twist' in Japan Mar 28th 2012, 02:33 Tue Mar 27, 2012 10:33pm EDT * BOJ already buying huge amount of bonds - Nishimura * Excludes sales tax hike effect in gauging price trend * Adds "Operation Twist" may push up yields in Japan By Leika Kihara TOKYO, March 28 (Reuters) - Bank of Japan Deputy Governor Kiyohiko Nishimura voiced caution on Wednesday over bolder steps to stimulate the economy, such as boosting long-term government bond buying or adopting a Federal Reserve-style "Operation Twist" that aims to cap long-term bond yields. But he signalled the central bank's readiness to keep monetary conditions ultra-easy for several years if the economy continues to struggle, and said it would exclude the effect of any increases in sales tax when guiding policy. "In guiding monetary policy, the BOJ focuses on the medium- to long-term trend of prices. That means we look at the trend of prices excluding the effect of any sales tax hike," he told a parliamentary committee. Under "Operation Twist," the Fed rebalances its portfolio with longer-dated securities to push down long-term yields. In doing so, it sells short-term securities and buys longer-dated ones to make the effect of the operation on its balance sheet neutral. Nishimura said Japan should not adopt such a policy as doing so risks destabilising markets and pushing up medium- to long-term bond yields. He also voiced caution over boosting the BOJ's purchases of long-term government bonds, saying that the central bank was already buying a huge amount of bonds. "We need to be careful so that our huge bond buying is not misinterpreted by markets as monetising debt," he said. "With this view in mind, the BOJ will guide policy appropriately to pull Japan out of deflation." The BOJ has kept interest rates effectively at zero and buys assets ranging from government bonds to private debt under its 65-trillion-yen ($782 billion) asset buying and loan programme. Aside from this, it also buys 21.6 trillion yen in long-term government bonds per year. Link this Share this Digg this Email Reprints

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