BoJ to Buy $16bn of Banks' Shareholdings

October 11, 2002
By Mariko Sanchanta in Tokyo

The Bank of Japan on Friday said it would buy ¥2,000bn ($16.5bn) of banks' shareholdings to make them less vulnerable to stock market swings.

The BoJ also urged the government to use public funds to accelerate the disposal of banks' non-performing loans, in its report released after the markets closed.

The share buying plan would last up to the end of September 2003 and would cover more than 10 banks. Last month, the BoJ stunned the market by announcing it would buy shares directly from banks.

Japan's central bank expressed concern over the recent plunge in the stock market, saying it would intervene if necessary. Masaru Hayami, BoJ governor, said: "If liquidity problems emerge from declines in stock prices, the BoJ is ready and has the means to provide additional funds."

The report signalled a more co-ordinated approach between the BoJ and the government, which have for some time been at loggerheads over tackling Japan's weak economy, deflationary environment and banks' non-performing loans.

The BoJ said it would work with the government to avoid the risk of a financial crisis. Economists said the report was heartening, in that it looked like the BoJ and the government were serious about taking a harder-line stance regarding NPLs.

"I think it would be progress if the Financial Services Agency takes this to heart, and it looks as though they are thinking along the same lines," said Chris Walker, economist at Credit Suisse First Boston in Tokyo. "It does seem to raise the chances that we will get aggressive action on bad loans."

But earlier in the day, the BoJ decided to keep its monetary policy unchanged, despite a call from Masajuro Shiokawa, finance minister, for further easing.

"What I find disappointing is that BoJ did not do anything on the monetary policy front. If they continue to stick to that line, there's going to be a big problem with resolving the bad loans," said Mr Walker. "It's remarkable that the central bank seems to be doing someone else job but it's not doing its own job."

The Nikkei is down almost 20 per cent since September 19, when the BoJ said it would buy shares directly from banks. The benchmark Nikkei 225 average closed up just above the key 8,500-mark at 8,529.61. It has hit new 19-year lows almost every day for the past week, on uncertainty regarding the government's plans to clean up bad loans.

Analysts say that if the Nikkei falls to 7,000-7,500, banks' capital adequacy ratios could fall below the international requirement of 8 per cent. Japan's banks are estimated to have ¥40,000bn ($322bn, €329bn, £207bn) in equity holdings, making them vulnerable to market swings.

Heizo Takenaka, new head of the FSA, said the new task force in charge of dealing with banks' bad loans would issue a report in the week starting October 21.

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