BOJ to lift capital in preemptive measure
By Leika Kihara |
May 9, 2011, Monday
|
Print Edition
Print Edition
THE Bank of Japan plans to bolster its capital to provision against potential losses from an asset-buying scheme, a source familiar with the central bank's thinking said, in a move that would give it room to further ease monetary policy if needed to support the economy.
The central bank now buys a range of assets including government bonds, corporate bonds and real estate investment trusts via a pool of funds that was doubled to 10 trillion yen (US$124 billion) after the March 11 earthquake and tsunami.
The BOJ plans to ask for government approval to set aside more of its profits as reserves as a preemptive measure given that the asset purchases put it at greater risk of losses on its asset holdings, the source said.
But any increase in capital will be relatively small in size because the BOJ is thought to have barely eked out a profit in the financial year that ended in March, according to the source, who declined to be identified due to the sensitivity of the matter.
That means the move would not likely be a sign that the BOJ is gearing up to ease monetary policy immediately.
BOJ Governor Masaaki Shirakawa has said that for the time being he hopes to examine the effect of the central bank's monetary easing in March, but that the BOJ was ready to take action as needed.
That remark signals that the BOJ plans to stand pat on monetary policy until there is fresh evidence that the quake's damage to the economy is much worse than expected, or that sharp gains in the yen and stock price falls persist and severely hurt business sentiment, BOJ officials say.
The BOJ's capital adequacy ratio was 7.43 percent at the end of September, down from 7.47 percent in March 2010.
The central bank now buys a range of assets including government bonds, corporate bonds and real estate investment trusts via a pool of funds that was doubled to 10 trillion yen (US$124 billion) after the March 11 earthquake and tsunami.
The BOJ plans to ask for government approval to set aside more of its profits as reserves as a preemptive measure given that the asset purchases put it at greater risk of losses on its asset holdings, the source said.
But any increase in capital will be relatively small in size because the BOJ is thought to have barely eked out a profit in the financial year that ended in March, according to the source, who declined to be identified due to the sensitivity of the matter.
That means the move would not likely be a sign that the BOJ is gearing up to ease monetary policy immediately.
BOJ Governor Masaaki Shirakawa has said that for the time being he hopes to examine the effect of the central bank's monetary easing in March, but that the BOJ was ready to take action as needed.
That remark signals that the BOJ plans to stand pat on monetary policy until there is fresh evidence that the quake's damage to the economy is much worse than expected, or that sharp gains in the yen and stock price falls persist and severely hurt business sentiment, BOJ officials say.
The BOJ's capital adequacy ratio was 7.43 percent at the end of September, down from 7.47 percent in March 2010.
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