BOJ to resume stock purchases

The Bank of Japan (BOJ) said on Tuesday that it will revive a plan to buy shares held by financial institutions to shore up their capital, which has been badly eroded by the global stock-market rout. The BOJ plans to spend up to 1 trillion yen (US$111.5bn) through April 2010, resuming a program it ended more than four years ago. The announcement came after a meeting between Governor Masaaki Shirakawa and his policy colleagues. The Japanese central bank will hold the shares until at least March 2012. "While Japan's financial system has maintained stability as a whole, the persistent strains in the global financial and capital markets have induced a plunge in stock prices and a rise in credit costs, thereby having substantial adverse effects both in terms of credit intermediation and management of financial institutions," the BOJ said in a statement published on its website. The BOJ said that it resumed the stock purchases to support financial institutions’ future endeavors to reduce market risk associated with stockholdings, and through which to ensure the stability of the financial system. It added that the share purchases would help improve the financial position of banks and bolster the financial system. The BOJ is seeking approval for the plan from the Ministry of Finance and other government bodies. The Japanese central bank did not say when it would begin share purchases. It plans to sell all the shares it acquires by the autumn of 2017. The BOJ said it will buy shares with a rating of BBB- or higher. The shares need to have been traded for a minimum of 200 days per year and have an annual turnover of 20 billion yen. Eligible banks are those whose stock holdings exceed 50% of its tier-one capital and whole total holdings are greater than 500 billion yen, the BOJ said. The Japanese central bank last bought shares in 2002 to 2004, when it pledged to purchase up to 3 trillion yen in equities after the stock market plunged to a 20-year low. In October 2008, the Nikkei fell below its 2003 bottom to 7,162.90. The bank started selling those shares in October 2007. It stopped the sales the following October, after the collapse of Lehman Brothers sparked the global market rout. The BOJ held 1.27 trillion yen in shares as of Jan. 31.