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BOJ to resume buying financial stocks

JAPAN'S central bank said yesterday it plans to resume buying stocks from financial institutions, whose bottom lines are being drained by heavy equity losses.

The Bank of Japan said the move is meant to "ensure the stability of the financial system" by helping banks reduce exposure to volatile stock markets.

Upon government approval, the central bank will buy 1 trillion yen (US$11.2 billion) in shares until April 2010. It will not offload shares to stock markets until the end of March 2012, the BOJ said after the policy board met earlier in the day.

The news sent financial issues higher in afternoon trading, with Sumitomo Mitsui Financial Group up 7.5 percent, Mizuho Financial Group Inc jumping 7.1 percent, and Mitsubishi UFJ Financial Group Inc rising 4.1 percent.

Earnings at Japan's big banks have been hit by a drop in the value of their stockholdings as the equity market has slumped in recent months. In the fourth quarter, the benchmark Nikkei 225 stock average shed more than 21 percent.

Japanese financial institutions' "latest third-quarter financial statements have reported massive realized and unrealized losses, suggesting that coping with market risk associated with stockholdings remains their critical business challenge," the BOJ said in a statement.

Steep losses on its stockholdings helped pushed major bank Mizuho deep into red in the third quarter, forcing the major Japanese bank to slash its full-year net profit outlook by 60 percent.

Mizuho, one of Japan's three "megabanks," last week posted a group net loss of 50.55 billion yen in the April-December period, blaming the dismal result on "credit-related costs primarily associated with an increase in domestic corporate bankruptcies, the declines in the stock markets, and continuously recorded losses on securitized products and others."

Rival Sumitomo Mitsui also cited stock losses as a key reason why net profit for the April-December period tumbled nearly 74 percent to 83.4 billion yen. It said it lost 106.1 billion yen on its stock portfolio.

The central bank offered a similar but bigger stock purchase program between November 2002 and September 2004. It bought a total of 201.8 billion yen in shares, which the central bank began selling in October 2007. It suspended the stock sales in October 2008 after the failure of United States investment bank Lehman Brothers Holdings Inc triggered massive declines in global equity markets.

Japan's central bank held 1.27 trillion yen worth of stocks as of the end of September.


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