BOJ Pumps More Cash Into Economy, Citing Stocks, Yen
Tokyo, May 20 (Bloomberg) -- The Bank of Japan said it would pump more cash into the world's second-largest economy, seeking to reassure investors after a government bailout of Resona Holdings Inc. caused bank stocks to plunge.
The bank raised reserves it makes available to lenders to as much as 30 trillion yen ($256 billion) from a maximum of 27 trillion yen, the bank said in a statement. It kept monthly purchases of government bonds, its main policy tool since cutting rates to zero in March 2001, unchanged at 1.2 trillion yen.
The government's decision to bail out Resona Holdings, the nation's fifth-largest bank, sent bank shares lower on concern that other lenders might seek government aid. The central bank's move probably won't increase the flow of money to companies because banks, burdened with 52.4 trillion yen of bad loans, haven't increased lending in six years, economists said.
``It's more of an announcement that they are reacting to Resona,'' rather than a move to spur lending and the economy, said Soichi Okuda, senior economist at Aozora Bank Ltd.
The Nikkei 225 Stock Average rose 0.3 percent to 8059.48 at the 3 p.m. close of trading in Tokyo after falling 1 percent yesterday. Shares of Mizuho Financial Group Inc. have fallen 11.6 percent in two days, and shares of UFJ Holdings Inc. have fallen 6.5 percent.
``We would like to counter risks and ensure the stability of financial markets,'' Bank of Japan Governor Toshihiko Fukui said at a news conference. ``Unstable stock and foreign exchange markets overshadow future prospects.''
Stock Plunge
A slowing economy and a 32 percent drop in the Nikkei average in the past year are putting pressure on Fukui and his eight policy board colleagues to prevent Japan from slipping into a fourth recession in a decade. Japan's economy didn't grow in the first quarter, ending a nine-month expansion, as exports fell.
Investors said today's decision adds to perceptions that the central bank is taking an active role in helping the economy, though lending won't rise until banks clean up their bad loans.
``It really doesn't matter what the central bank does because it will have very little meaning unless the nation's banks themselves take steps to fix their businesses,'' said Taiji Yoshida, who helps handle the equivalent of $23.7 billion as a fund manager at Yasuda Capital Management Co.
Since his inauguration as central bank chief on March 20, Fukui has announced policy steps at all four board meetings, including today's. That's in contrast to his predecessor, Masaru Hayami, who often took no action and said there was little more the bank could do.
``It has been a very active Bank of Japan so far under Governor Fukui,'' said Paul Sheard, chief economist for Asia at Lehman Brothers Japan Inc.
SARS
In April, Fukui announced a plan to buy asset-backed securities, giving companies an alternative to borrowing from banks. Details have yet to be announced, and Fukui said there was little time to discuss the plan today.
The central bank said in a statement that ``uncertainties arising from the prospects of a recovery in the U.S. and European economies, as well as the impact of SARS on east Asian economies'' are also clouding the outlook for Japan.
The yen's 7.4 percent gain against the dollar in the past year threatens profits of exporters such as Sony Corp. The Japanese currency had its biggest decline against the dollar in two months yesterday on speculation the Bank of Japan sold yen.
The yen traded at 117.28 to the dollar at 5:18 p.m. in Tokyo from 117.15 late yesterday in New York. The yen strengthened to as much as 115.07 to the dollar yesterday.
To add money to the economy, the Bank of Japan buys securities such as government bonds from banks, and it then credits the sellers' accounts at the central bank. Because the money earns no interest, banks have an incentive to use it to make loans.
Stock Purchases
After today's decision, the target for reserves stands at between 27 trillion yen and 30 trillion yen, from an earlier range of between 22 trillion yen and 27 trillion yen.
The central bank has already exceeded its previous target for reserves, which today reached 27.8 trillion yen. The level of reserves exceeded 30 trillion yen from March 31 and April 2, when the bank pumped extra cash to meet a surge in cash demand from companies, which close books on March 31.
In March, the bank decided to expand purchases of shares from lenders by half, to 3 trillion yen. The purchases are designed to limit investment losses inflicted on Mizuho Financial Group Inc. and rivals by sliding share prices.
Minutes of the bank's board meeting will be published on June 30.
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