More JGB buying by BOJ may raise rate volatility: minutes.

TOKYO, March 10 Kyodo

Some Bank of Japan (BOJ) Policy Board members said at the panel's Feb. 13-14 meeting that more purchases of Japanese government bonds (JGBs) by the central bank could increase the volatility of long-term interest rates, according to minutes released Monday.

''Regarding an increase in the bank's outright purchases of JGBs, a few members raised the question of the risk that they would increase the volatility of long-term interest rates that were historically low at present,'' the minutes said.

The minutes said some board members also found it inappropriate to take steps to underpin asset prices, pointing to the problem of the feasibility and side effects of influencing asset prices.

At the Feb. 13-14 meeting, the BOJ policy-setting panel maintained its ultra-easy monetary policy despite government pressure to further ease credit to support the economy toward the March 31 end of fiscal 2002.

''Members agreed that it was appropriate to maintain the current guideline for money market operations, given that there were no major changes in the bank's assessment of economic and financial developments since the previous meeting, and that financial markets remained extremely easy,'' the minutes said.

Despite the policy board's decision not to take additional credit-easing steps for now, the panel did discuss whether to increase outright purchases of JGBs and purchase ''nontraditional'' assets, both of which were often raised as additional monetary easing measures the bank could take, the minutes showed.

''One member said that there was a possibility that drastic action by the bank to increase the amount and range of assets eligible for purchase could influence people's expectations,'' the minutes said.

But another member argued that, if inflationary expectations increased, ''this would be due to people's loss of confidence in the bank's control over prices,'' they said.

In response to such discussions, a Ministry of Finance (MOF) representative who attended the meeting as an observer called on the BOJ to increase its monthly outright purchases of JGBs to 2 trillion yen from 1.2 trillion yen and consider removing temporarily the BOJ's limit on JGB holdings, the minutes said.

The MOF representative also urged the central bank to consider underwriting Fiscal Investment and Loan Program agency bonds issued by government financial institutions, according to the minutes.