Hayami:No need to buy more than Y2 trln from banks

Reviewed By Hitoshi URABE

Article:
"Hayami:No need to buy more than Y2 trln from banks"
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=2389634
Reuters

Comments:

Introduced here is a very short article reporting that the Bank of Japan Governor Mr Hayami,, who is leaving the office this week, said that purchases from commercial banks of stocks of private companies need not be extended beyond the present target of 2 trillion yen.

This is in response to some politicians insisting for just about any sort of measure for the stock prices to stop falling, including more involvement by the central bank.

It was last week that the stock prices broke the 8,000-yen floor on Nikkei Average, and subsequently recorded the lowest in twenty years. On the first day of trading this week, it tumbled again, to close at 7,871.64, barely avoiding to renew the low record.

It was an embarrassing event for the authorities as it was only a few days after the announcement of the plans to support the market. As the prices plummeted last week, it was considered that something would be needed to cheer the market as the end of fiscal was coming up within a couple of weeks, and many investors, especially banks and insurance companies with huge holdings of stocks, would have to record enormous losses, at a time when confidence was being lost in these institutions by investors, domestic and foreign alike.

The situation was somewhat similar last year about this time, when the Nikkei hovered around 11,000 yen, which the people thought at the time it was at a critical state. They came up with a new rule, to ban short selling of securities, which had a significant effect in lifting the prices, only to be realized later that such an obscene trickery by the authorities would only harm the market in the medium and long run.

They had a little more sense this year, and kept the formula within the people's expectations, without any surprise. The problem, however, was that the measures thus announced were so orthodox and so subtle, they had virtually no effect in the stock market. When the market opened this week, overshadowed by the uncertainties over war in the Middle East, the prices had nowhere to go but down again.

Obviously, additional plans have been floated in the political circle to hold up the stock market.

Postponement of implementation was considered for new regulations, such as to require banks to record their securities holding at market prices, and to limit the amount of securities banks would be allowed to hold to their volume of capital. It has been reported that these postponements were strongly opposed by Mr Takenaka, the finance minister, on the ground that such deferment would only evoke skepticism toward the government's will on financial reform, inviting even worse consequences.

Another idea some politicians are suggesting is for the Bank of Japan to increase the amount of its purchase of stocks from commercial banks, a measure that began in the fall last year with a cap of 2 trillion yen, of which close to half is already utilized.

It is to this suggestion Mr Hayami has expressed his resistance, based on his experience as the governor of the central bank that the scheme has not had much effect in propping up the market while degrading the asset of the central bank. Of course it needs to be seen how his successor, Mr Fukui would respond when he takes office later this weeks.