TOKYO, Dec 5: Japan may buy foreign bonds to increase liquidity in the financial system in a bid to spur its flagging economy, a ruling party leader said on Wednesday.

I don’t think we should procure foreign bonds in the current market but, if new foreign bonds are issued, it provides an opportunity that is worth consideration, secretary general of the Liberal Democratic Party Taku Yamasaki told journalists.

He used possible new issuances to fund the US’ war on terrorism as an example.

Washington may issue new government bonds. I don’t know if the United States needs to procure funds due to the Afghan situation, but we can consider such a thing, he said.

In late October, the US House of Representatives approved the issuance of war bonds — for the first time in more than 50 years — to finance US reconstruction efforts after the September 11 attacks that destroyed landmark buildings in New York and Washington.

Calls are mounting for the Bank of Japan (BoJ) to buy foreign bonds to boost the targeted level of reserves in its current account.

This would raise liquidity in the financial system and help support banks as they struggle to dispose of a mountain of non-performing loans under a government reform plan.

The Paris-based Organisation for Economic Cooperation and Development (OECD) recommended such a move in an annual report on the world’s second largest economy published Tuesday.

Yamasaki joined a chorus of voices calling on the central bank to introduce a price target to help ease deflationary pressures in Japan.

Establishment of a price target is indeed an extremely important proposal as there is a risk of Japan lapsing into a deflationary spiral, he said. We should examine if it’s possible to be implemented. If proven possible we can adopt it.

The BoJ has so far resisted such calls, but in a government policy report released Tuesday, Tokyo directly asked the bank to consider an inflation target with consumer prices falling for the 26th straight month in October.—AFP