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. Last Updated: 07/27/2016

Bank of Japan Pressured To Kick-Start Economy

TOKYO -- Pressure on the Bank of Japan to do something to spur the nation's limping economy increased Monday as government and central bank policy-makers publicly considered the limited options available.

While monetary authorities held firm in opposing the idea of the central bank directly buying government debt f a proposal that critics say could hurt Japan's sovereign credit rating and cause hyperinflation f attention shifted to such measures as boosting money supply or expanding current bond-buying market operations.

"We have largely done what we can do in terms of monetary policy," said Bank of Japan policy board member Kazuo Ueda.

He said that with the official discount rate at just 0.5 percent and overnight market rates targeted at 0.25 percent, the central bank has little room left to cut interest rates.

Ueda, a former Tokyo University professor, has advocated considering an easing of credit by increasing Japan's monetary base or bank notes.

The bank's policy board is to hold a regular monetary-policy meeting Friday amid heightened speculation that it could take further steps to ease credit.

The spotlight has fallen on the Bank of Japan after government spending has been all but exhausted as a remedy for Japan's worst postwar recession. The burgeoning debt issued to pay for tax cuts and public works programs has pushed up long-term interest rates, crimping the economy and undercutting fiscal stimulus.

But there appeared to be no easy answers from the monetary side either.

Ueda restated the central bank's opposition to a proposal floated by some in the ruling Liberal Democratic Party and academics to have the central bank underwrite Japanese government bonds directly from the government.

Merely discussing this idea of printing money to "monetize" or help cover the national debt and fight deflation could put upward pressure on long-term interest rates, Ueda said.

Proponents of the debt-underwriting idea say it would curb recent interest rate rises by sopping up the flood of 30 trillion yen ($263 billion) in fresh bonds that the government plans to issue in the coming fiscal year.

Investors in the already-glutted bond market initially cheered the proposal but got a sobering reminder of its difficulties Friday when a credit-rating agency said the plan could lead to an explosion of new government debt that could prompt cuts in Japan's debt rating.

The Bank of Japan and the Finance Ministry have strongly opposed the idea, which is banned under Japanese law except in undefined emergencies, because it led to runaway inflation during and after World War II.

Nonetheless, top government spokesman Hiromu Nonaka said Monday that even if it cannot directly underwrite debt, the central bank must consider using the tools it has at hand.

Interest rates fell sharply on Nonaka's remarks, which were seen as exerting more pressure on the bank to take action, even though Nonaka specifically denied later in the day that he was pressuring the Bank of Japan.

Yields had risen on Ueda's remarks, which were seen as opposing new action.