Japan officials say no plan for BOJ to underwrite debt

TOKYO Japan has no plans to ask the central bank to underwrite bonds Tokyo may issue to fund relief and reconstruction after last week's deadly earthquake, top government officials said on Friday, denying an earlier newspaper report.

Earlier on Friday, Sankei newspaper cited "several government sources" as saying that the government planned to issue more than 10 trillion yen ($126.8 billion) in emergency bonds which would be taken up in full by the central bank.

The newspaper said that even though the law prohibited the BOJ from directly underwriting government debt it allowed for exceptions under "special circumstances" and that the worst quake to hit Japan in recorded history easily qualified as one.

Government ministers, however, no such plan was being discussed.

"The BOJ is not allowed by law to directly underwrite government bonds... There is ample liquidity at households and companies and the government would have no problem raising the amount of money that is floating around," Economy Minister Kaoru Yosano told an news conference.

"The BOJ won't be called to take special steps. That I can say with certainty."

Finance Minister Yoshihiko Noda also brushed off the report and stressed that the government had no difficulty in raising funds in the market and any proposals to seek direct

"A cautious debate would be needed on whether to have the Bank of Japan directly underwrite JGBs (Japanese government bonds)," Noda told reporters.

"The 20-year bond auction has been conducted smoothly so the market is smoothly digesting JGBs. I'm aware that various people have various opinions on this, but the government is not specifically considering it."

Yosano told Reuters in an interview on Thursday that the total damage to the economy form a triple blow of an earthquake, a tsunami and a nuclear crisis would exceed 20 trillion yen, which he said was the overall economic cost of the Kobe quake in 1995.

He also said that the emergency budget needed to fund the economic repair looked certain to exceed 3.3 trillion yen Tokyo mobilized after the Kobe earthquake.

But he said the government should have no difficulty funding the extra effort which might require issuing several trillion yen in new bonds.

Sankei said the Democratic Party-led government could save money for disaster relief by dropping some of its costly spending plans, such as extended child support benefits, but that could bring 3.3 trillion yen at the most. ($1 = 81.8 Yen)

(Additional reporting by Tetsushi Kajimoto; Editing by Tomasz Janowski)