Japan's BOJ Desperately Printing Money

April 8, 2003

This is big news. Asset backed securities are ones that have lost value because the market price of the asset has declined so far that the sale of the asset will not repay the face value of the security. So the BOJ is forced to purchase them as a buyer of last resort. They have been doing that with government debt for years and they just finished doing it with stocks, now this. The yen is basically worthless, the country is bankrupt. The things this country exports are made by purchasing hard goods from third world countries but who wants the yen, hence the price of all things must rise in yen terms which means the prices of Japanese exports can only fall so far and they have fallen now about as low as they will ever be.

Bank of Japan May Buy Companies' Asset-Backed Paper to Help With Cash Flow
By Mayumi Otsuma

Tokyo, April 8 (Bloomberg) -- Japan's central bank may buy corporate debt in addition to government bonds as new governor Toshihiko Fukui tries to ensure money pumped into the world's second-largest economy supports investment by companies.

Japan's central bank said it would consider buying asset- backed securities held by banks and other institutions. The bank also said it would keep monthly purchases of government bonds -- its main policy tool since cutting rates to zero in March 2001 -- unchanged at 1.2 trillion yen ($10 billion).

``Outright purchase of private debt is an unprecedented measure for a central bank,'' the Bank of Japan said in a statement after policy makers met.

Fukui is looking for new ways to pull Japan out of a 12-year slump because banks have been reluctant to lend on the cash they get in existing central bank operations. The new purchases will support prices and encourage companies to raise cash through sales of assets such as bills due from other companies.

``This may signal just the first step in Fukui's attempt to diversify the central bank's policy,'' said Yasuo Goto, a former central bank official and a senior economist at Mitsubishi Research Institute.

The dollar pared gains against the yen after the announcement. The U.S. currency fell to 119.63 yen at 5:41 p.m. in Tokyo from as high as 120.14 yen. It traded at 119.73 yen late yesterday in New York.

``This would make it easy for small- and medium-sized companies to raise funds,'' said Akira Gomikawa, assistant foreign exchange manager at Mizuho Corporate Bank Ltd. ``It's good for the Japanese economy and is encouraging yen buying.''

A Departure

The move would be a departure from the policies of former governor Masaru Hayami, who resisted political pressure to buy assets such as foreign bonds and exchange-traded funds. Fukui said today that the central bank would consider buying other types of assets.

Today's policy meeting was another sign that Fukui and the government of Prime Minister Junichiro Koizumi are working more closely to halt a five-year slide in consumer prices, which has cut corporate profits and sapped economic growth.

``The move would play a major role in creating an asset market,'' said Heizo Takenaka, Japan's economic and fiscal policy minister. ``The government and central bank will work together to push ahead with structural reforms and stop deflation.''

Fukui said the bank wants to stimulate the market for asset- backed securities and give companies an alternative source of funds to bank loans. Details will be hammered out by early May, Fukui said at a press conference after policy makers met. He said the purchases would last ``several years.''

``The important thing is to make this market bigger,'' Fukui said.

Bottleneck

Economists estimate the Japanese market for one type of security, asset-backed commercial paper, at the equivalent of $42 billion -- less than a 10th of the $704 billion market in the U.S. The central bank said Japan's market for other-asset backed securities, such as those backed by housing loans and real estate, comes to $12.5 billion, compared with $1.66 trillion in the U.S.

In December, the central bank started accepting asset-backed commercial paper, which has maturities of up to six months, from commercial banks as collateral for loans. Buying the securities outright would boost demand, driving up prices and encouraging more companies to raise cash. That would make more money available to companies at lower cost.

In Japan, sellers of asset-backed commercial paper include Concerto Receivables Corp. Concerto can sell up to 100 billion yen of paper and had 66.7 billion yen outstanding as of Dec. 31, 2002, according to Moody's Investors Service, which rates the debt P1, its highest short-term credit rating.

Buying asset-backed securities would help uncork the bottleneck that keeps cash that's flooding Japan's banking system from flowing to companies that need it to buy more equipment and hire workers, analysts said.

Confidence

Unlike the Bank of Japan, the world's other major central banks still have room to cut interest rates. In the U.S., the federal funds rate is at 1.25 percent, the lowest since July 1961. The European central bank's key rate is 2.5 percent, the lowest in almost 3 1/2 years.

After cutting rates to zero under Hayami, the central bank tripled purchases of government bonds to 1.2 trillion yen a month. That hasn't stopped a six-year slide in lending because banks, burdened by an estimated 52.4 trillion yen of bad loans, are reluctant to extend fresh credit to companies.

Japanese government bonds were little changed after yields fell to record lows last week. The No. 248 bond, which has a coupon of 0.7 percent and matures in 2013, rose 0.139 to 99.861 at 5:40 p.m. in Tokyo, pushing its yield down 1.5 basis points to 0.715 percent. A basis point is 0.01 percent.

More will be needed to cure an economy hurt by near-record unemployment of 5.2 percent and a 28 percent decline in the Nikkei 225 Stock Average in the fiscal year ended March 31, economists said.

The purchases would ``probably help investor confidence, but the step will have little impact to support the economy,'' said Mamoru Yamazaki, chief economist at Barclays Capital Japan Ltd.

The central bank also said it would keep the target for reserves it makes available to lenders unchanged at between 17 trillion yen and 22 trillion yen.

A majority of board members voted to keep monetary policy unchanged, the central bank said.

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