BOJ Decides to Pump More Cash into System

May 21, 2003
By Mayumi Negishi, Staff writer

The Bank of Japan decided Tuesday to pump still more money into the economy amid falling stock prices, a rising yen and the bailout of Resona Bank.

The plan takes effect Wednesday.

"The measure of uncertainty surrounding the Japanese economy is growing," BOJ Gov. Toshihiko Fukui said. "Our move today shows the BOJ's commitment to take all pre-emptive measures against instability in financial markets."

Financial markets hardly budged after the announcement, which some analysts described as "more of the same."

The BOJ had been expected to make some sort of market-calming gesture in sync with the government after the Resona Group, the nation's fifth largest banking group, announced over the weekend that its capital levels had fallen below regulatory levels.

In the latest step, the BOJ will flood the accounts of financial institutions held at the central bank. The bank hopes to boost the balance of such accounts to between 27 trillion yen and 30 trillion yen, up from the current target of 22 trillion yen to 27 trillion yen. The decision was made earlier in the day during a two-day meeting of the BOJ's nine-member policy board, Fukui said. Two members dissented.

The balance of current accounts Tuesday was about 27.8 trillion yen.

In the announcement, the BOJ said it considers foreign exchange markets to be a new risk factor to the economy. The move was in line with the Finance Ministry, which had recently intervened in the markets to halt the yen's rise against the dollar.

"I don't see foreign exchange markets severely hurting us in the short-term, but we can't be wholly unconcerned about how foreign exchange rates will affect the Japanese economy," Fukui said.

The central bank has been force-feeding markets with practically free extra money for more than two years. It hopes that some of the money will eventually find its way into loans and that record-low interest rates will prompt more businesses and consumers to spend.

This so-called quantitative monetary easing has been effective at stabilizing markets, Fukui said. But it alone cannot bring the economy back to its feet as banks continue to struggle with problem loans and borrowers seek to unload debt, he added.

Fukui dismissed fears of a crisis emerging from capital deficiencies at other banks, saying there was no crisis. He warned, however, that banks "are running out of time to create business models that will improve profits."

Banks all face similar problems and must raise funds and bolster capital while disposing of bad loans, he added.


Bank president fumes
The head of the Japanese Bankers Association said Tuesday that Resona Holdings Inc. should not be allowed to compete with taxpayer's money against other banks. The government announced Saturday that Resona would receive an injection of public funds, estimated to be around 2 trillion yen.

"It is not in keeping with market principles that a bank operating with public funds as its base should continue to compete with former competitors managing on their own," Shigemitsu Miki said at a news conference.

"Don't drag the rest of us down," he added.

Resona should be made to find a new business model, said Miki, president of Bank of Tokyo-Mitsubishi Ltd., the core entity of banking group Mitsubishi Tokyo Financial Group Inc.

He did not speak about other major banks that have received public money.

Miki also said that the less the government intervenes in the management of bailed-out Resona, the better.

"The state's role is to make sure that (Resona) stays true to its earnings plan," he said. "It is not to manage a bank. I think that job would be too much for the state."

Mitsubishi Tokyo Financial Group is the only one of the four largest banking groups to have returned publicly injected funds to the government.

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