Bank of Japan May Buy Shares From Lenders
Japan’s central bank said Wednesday that it is considering buying shares from the country’s struggling banks as part of a radical plan to stabilize the financial system and help the banks get rid of massive debt from bad loans.
The news helped spark a major rally in Japanese stocks today, driving the Nikkei-225 index up 360.42 points, or 3.8%, to 9,832.48 in afternoon trading. The yen rallied against the dollar.
The Bank of Japan governor, Masaru Hayami, said lenders would be able to sell their stockholdings directly to the central bank only in an emergency, and not through the market. The Bank of Japan would buy the shares at market value and hold them for about 10 years, he said.
Hayami, speaking to reporters after the central bank’s policy board left its monetary policy unchanged, said he would provide specifics soon.
Hayami acknowledged that the new steps could damage the central bank’s balance sheet. But he warned that unless banks reduce their stockholdings to free up cash, they were unlikely to deal quickly with their massive loan problems.
The government has said bad loans at the nation’s banks swelled to $352 billion in March from $295 billion six months earlier. Analysts say the true figures probably are much higher.
Japanese banks, among the biggest investors in the Tokyo stock market, have been selling stocks in recent years, but losses have accumulated as the market has fallen. The Nikkei index hit a 19-year low of 9,075.09 on Sept. 4.
Analysts said the Bank of Japan’s move would place a floor under stock prices, at least in the short term.
The central bank’s resolve to bolster shaky lenders and help banks write off bad loans could quiet calls from lawmakers and Cabinet officials for more aggressive steps to boost the economy.
Critics worry, however, that the Bank of Japan may compromise its credibility if it appears to be caving to political pressure or trying to manipulate financial markets.
Earlier Wednesday, the bank’s policy board decided to keep short-term interest rates near zero and continue providing funding to banks at virtually no cost.
The central bank has held rates near zero for the last two years and made it easier for banks to secure funding. So far, however, the bank’s policy has failed to spark a sustained economic turnaround.
In its monthly assessment for September, the Cabinet said Wednesday that Japan’s economy faced increasing risks from declining stock prices and a worrisome U.S. economy, though it is still on a tentative road to recovery.
Although Japan’s downturn appears to have bottomed out and signs of better times have appeared, unemployment is soaring and deflation continues to plague the economy.
