BOJ's Bond Buying Draws Scrutiny After Ex-PM Calls Central Bank A Govt 'Subsidiary'

Japanese policymakers were forced to reassure markets on Tuesday the government was not forcing the Bank of Japan to bank-roll public debt, after former premier Shinzo Abe described the central bank as a government "subsidiary" that can fund its spending indefinitely.

When asked in parliament about the remark, Finance Minister Shunichi Suzuki said the government did not believe it was fine to have the BOJ buy and roll over government debt indefinitely.

"We must avoid creating a situation where Japan could lose market trust over its finances," Suzuki said.

Chief Cabinet Secretary Hirokazu Matsuno also told reporters that the government must respect the BOJ's jurisdiction in setting monetary policy.

The remarks came after Abe was quoted as saying by local media on Monday that it was "totally fine" to roll over the government's huge debt sold to the central bank "because the BOJ is the government's subsidiary."

Comments from Abe, who yields strong influence in political circles, drew fire from opposition lawmakers as a sign the BOJ's ultra-loose policy was allowing the government to keep up huge spending despite Japan's ballooning public debt.

It also stoked concern Japan is edging closer to debt monetisation, a practice prohibited under law in which the central bank directly underwrites government borrowing.

The BOJ already buys huge amount of debt, but does that in the market rather than directly from the government.

To avoid the impression it is close to monetising debt, the central bank had refrained from buying bonds in the market on the day the finance ministry held its debt auctions.

The BOJ broke with the practice on Tuesday by continuing its offer to buy unlimited amount of 10-year government bonds, despite the ministry's scheduled debt auction during the day.

The move follows the central bank's strengthened commitment last month to keep interest rates ultra-low by vowing to buy unlimited amounts of bonds daily.

The BOJ's prolonged stimulus programme has recently come under fire for fuelling an unwelcome yen fall, as investors focus on the widening gap between Japan's ultra-low interest rates and rising rates for other major economies.

Some analysts warn the BOJ may be forced to keep ultra-low rates longer than it wants to keep debt-financing costs low.

Japan's public debt, at twice the size of its economy, is the biggest among major countries due to decades of huge fiscal spending to support the economy.