Some Japanese politicians as well as private economists favour the idea of BOJ debt purchases, which would effectively mean the central bank would print money, helping to boost the economy and ease pressure on long-term interest rates.

"There is always the risk that there will be a larger amount of government borrowing which could even actually push up interest rates or crowd out private sector borrowing that would lead to greater fiscal debt for Japan -- which would have a negative impact for our sovereign rating of Japan," Fitch IBCA managing director David Marshall said.

As a result of Marshall's comments, fears over Japan's rating fuelled heavy selling towards the close of trading.

The yield on the 10-year benchmark climbed as high as 2.375 per cent in late afternoon, up from Thursday's close of 2.190 per cent. The rise in the rate pushed the yen up against the dollar.

The JGB yield was still below Wednesday's high of 2.440 per cent, the highest since June 1997.

Wednesday's rise came after finance minister Kiichi Miyazawa said they were not concerned about the recent rise in Japan's long-term interest rates.

Government authorities on Friday again played down the effect of the recent JGB yield rises, which stems from fear that the 30 trillion yen ($ 2.7 billion) in debt the government plans to issue in the coming fiscal year to finance economic stimulus measures will swamp an already glutted the JGB market.

The idea of BOJ underwriting, one idea being discussed by some in the ruling Liberal Democratic Party, initially captivated bond market participants this week.

But Marshall's comments focused attention on the risks of the proposal, using exactly the same arguments the BOJ and the government have made in opposing the idea.

"The central bank can't actually create more savings, they can't change the perceived credit risk of the Japanese government, so ultimately we think their ability to reduce long-term interest rates is limited," he said.

The key proponent of BOJ debt purchases, LDP lawmaker Ichizo Ohara, told Reuters Television late on Thursday he might propose as much as 10 trillion yen in BOJ underwriting over two years.

In Washington on Thursday, the US treasury department denied that secretary Robert Rubin had suggested Japan adopt the BOJ plan, as some Japanese media reported.

And the LDP's own policy chief, Yukihiko Ikeda, joined government leaders in opposing the plan.

"We should definitely not take such measures and I don't think we are in a situation in which we have to," Ikeda told reporters, according to Jiji Press. "It is definitely not possible under our laws. And think about all the harm it would cause."

Direct JGB underwriting by the BOJ is banned under Japanese law -- except for undefined "special reasons" -- due to the runaway inflation spawned by the practice during World War II.

"When I think of the history of the economy during and after the war, I instinctively don't want to do it," said Miyazawa, the 79-year-old finance minister who was a finance bureaucrat when Japan was rebuilding itself from the rubble of the war.

The top government spokesman, chief cabinet secretary Hiromu Nonaka, said every avenue must be explored to find buyers for the flood of JGBs, noting cryptically that Japan bought much of the US Government's debt during the 1980s, possibly suggesting the US might now help by purchasing Japanese bonds.