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Bank of Japan stays with policy
TOKYO, Japan (Reuters) -- The Bank of Japan took its first policy action under new leadership on Tuesday, saying it would buy more stocks from banks and provide as much liquidity as markets need to weather the fallout from war in Iraq. But the bank stopped short of the full-fledged monetary easing that some had expected from a rare emergency meeting. That disappointed some analysts and investors who had hoped for a bolder start from new governor Toshihiko Fukui. As widely expected, the BOJ said it would increase its purchases of shares held by banks to three trillion yen ($24.85 billion) from the current two trillion, extending a program begun last year aimed at reducing banks' exposure to stock volatility. It also said it would do its utmost to stabilize markets as they react nervously to the U.S.-led invasion of Iraq, providing as much liquidity as needed. "The Bank of Japan is closely monitoring how the military action will affect the economy, especially through stock and foreign exchange markets, and stands ready to make every effort including the additional provision of liquidity to ensure financial market stability," the BOJ said in a statement. The bank said the economy remained stagnant with "substantial uncertainty" about the outlook stemming from prospects for overseas economies, stock market moves and progress in dealing with the Japanese banking system's huge bad loans. 'No surprises'But analysts said Tuesday's steps seemed aimed more at fending off a financial crisis as banks and companies close their books on March 31 rather than addressing Japan's fundamental economic problems of deflation, low growth and massive bad debts. "All in all there's no surprise and no change from the Hayami era," said Yasushi Okada, economist at Credit Suisse First Boston Securities (Japan), referring to previous governor Masaru Hayami. "All that's on their mind is the banking sector. In short, it's just a band-aid ahead of the March book-closing." Ruling party politicians have been fretting that a slump in Tokyo share prices to 20-year lows could spark a financial crisis by exposing banks' dangerously low capital levels. Under the scheme that began last year, the BOJ has already bought a cumulative 1.032 trillion yen in shares held by banks by March 20, data released on Tuesday showed. The program is due to end in September 2003 but is extendable by a year if funds allocated are not fully used up. The revised plan announced on Tuesday will see the BOJ buy an extra one trillion yen in total and increase its maximum stock buying per bank to 750 billion yen from 500 billion. The BOJ has taken pains to suggest that the stock-buying is neither aimed at directly boosting stock prices nor used as part of its monetary policy. The Nikkei 225 share average ended down 2.33 percent at 8,238.76, getting little apparent boost from the BOJ move. Under its two-year-old "quantitative easing" policy to keep interest rates near zero, the BOJ floods the money market with excess liquidity, using the balance of banks' current account deposits at the central bank as a yardstick. The current target for that volume is 15-20 trillion yen, but the central bank has been keeping the balance well above that range over the past week. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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