Bank of Japan Unveils $11 Billion Stock-Buying Scheme

The Bank of Japan said it will buy up to $11 billion worth of shares held by Japanese banks to ease the pain from the global financial crisis, reviving a scheme launched earlier in the decade to head off a banking crisis.

Katsumi Kasahara / AP

Global market tensions and falling stock prices have hurt Japanese banks' balance sheets and their ability to lend, adding to the pressure on an economy already slipping deep into recession.

Stock markets were closed for the midday break when the announcement came out, but analysts gave the move a cautious welcome.

"If anything it is a positive. But it remains to be seen how much of an impact it will have on stabilizing the broader financial system," said Jason Rogers, credit analyst at Barclays Capital in Singapore.

"Banks' exposure to the stock market is excessive relative to their capital base and hence any such purchases will be welcomed."

But some questioned the timing of the BOJ's move.

"It raises questions about the underlying factor, the condition of banks' balance sheets," said Tomoko Fujii, head of economics and strategy for Japan at Bank of America in Tokyo. "If you think about why it came out at this particular time, it does leave some significant concern."

Under the scheme, the BOJ said it will buy up to 1 trillion yen ($11.2 billion) worth of shares held by Japanese banks up until April 2010.

It will only pick up shares of companies with credit ratings of BBB- or above from ratings agencies, it said in a statement.

The yen fell against the dollar and euro after the move, which was seen as positive for equities and as lessening risk aversion. The dollar stood at 89.86 yen, up from around 89.40 yen before the announcement.

Japan's banks held 25.6 trillion yen worth of stocks at the end of last March on a parent-company basis, the Japanese Bankers Association data showed.

BOJ Governor Masaaki Shirakawa will hold a news conference from 2:30 p.m. Tokyo time on Tuesday.
     
Overtime Pay Down

The global turmoil has already pushed much of the world's economy into recession, prompting policymakers to dish out trillions of dollars in bailouts and fiscal stimulus packages and drive borrowing costs ever closer to zero.

Japan's economy probably shrank 3.1 percent in the last three months of 2008, which would be the worst performance since 1974, as shockwaves from the global financial crisis rippled through the export-driven economy, a Reuters poll showed.

Japanese firms have complained of tightening financial conditions, and there are growing fears that otherwise healthy firms are being driven to the wall as they cannot obtain working capital -- especially smaller firms that are key suppliers to major corporates and employ 70 percent of Japan's workers.

Banks are caught between companies seeking more loans, because the credit market has frozen up, and falling values for their large stock portfolios, which have reduced the capital base of the banks themselves.

The central bank has cut interest rates to 0.1 percent and decided to buy corporate debt to smooth corporate funding, but markets have remained jittery as traders worry about the global
economic problems.

The central bank adopted a similar stock-buying scheme in 2002-2004 to help stave off a severe banking crisis in which many commercial banks were staggering under a huge pile of bad loans and valuation losses on stockholdings.

Prime Minister Taro Aso reiterated that Japan was not immune to the global economic downturn, which he said was unprecedented in the sense that recession was spreading simultaneously around the world and accompanied by signs of deflation.

"Japan's economy is worsening rapidly, led by exports," Aso told a lower house budget committee. "The degree of downturn is extremely severe compared with the past."

Data showed on Tuesday Japanese overtime pay in December marked the biggest annual fall in nearly 16 years, while overtime pay, a barometer of strength in corporate activity, fell 11.2 percent from a year earlier in December to mark the largest drop since April 1993, wage data from the labor ministry showed.

The Japanese economy contracted in the second and third quarters, initially hit by a spike in oil and commodity prices, and the government has said the economy has been in recession since late 2007.

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