* BOJ shouldn't buy JGBs to monetise debt -Shirakawa
* Maintaining trust in yen, JGBs crucial -Shirakawa
(Adds quotes, details)
By Leika Kihara
TOKYO, May 28 Bank of Japan Governor Masaaki
Shirakawa warned of the country's worsening fiscal balance and
stressed that policymakers need to come up with a strategy to
restore its long-term fiscal health.
Shirakawa also repeated that the central bank should not buy
government bonds for the purpose of monetising government debt
or stabilising bond yields.
"Long-term interest rates will rise if markets feel that the
central bank is buying bonds to finance fiscal spending or to
stabilise bond yields," Shirakawa told a seminar on Saturday.
His comments came a day after ratings agency Fitch cut its
outlook on Japan's sovereign debt, warning that the vast cost of
the devastating earthquake in March and the still unknown bill
for the clean-up of the nuclear disaster at Fukushima would
further strain the country's already shaky public finances.
"Japan is not faced with a rise in bond yields. But the
deterioration of its fiscal balance is serious," Shirakawa said.
"Maintaining trust in Japan's currency and government bonds,
both internationally and domestically, is a very important task
at a time its economy is affected heavily by the earthquake."
(Editing by Edmund Klamann)