ANALYSIS: BOJ's stock purchase sign of its hopes for banks to lend more

TOKYO, Feb. 3 Kyodo -
The Bank of Japan's decision Tuesday to resume its purchase of stocks held by
commercial banks comes as the current financial turmoil that is unsettling
stock markets around the world is increasingly damaging Japanese banks'
strength.
With heavy pressure on their capital, commercial banks are tightening their
attitude to lending and as a result, companies, especially smaller businesses,
are suffering from a serious credit crunch with the costs of accumulating
necessary operating funds surging.
The central bank's latest policy step could fall victim to criticism that the
measure will only have an indirect effect on resolving the problem as the BOJ
is just encouraging banks to lend more -- and not saving companies directly.
However, some analysts said the move amounts to a crucial ''message'' to
financial markets.
''There is no doubt the decision was a surprise to the market,'' said Masatoshi
Sato, senior strategist at Mizuho Investors Securities Co. ''The BOJ sent the
message that it is concerned about banks' health and share prices,'' he said,
adding that the market hailed the BOJ's attitude.
But some analysts disagreed, saying the BOJ's decision was tardy.
Many believe the BOJ took the decision with an eye on the approaching end of
the current business year through March, with market players intensely focused
on the fiscal 2008 earnings of major banks.
Last week, Mizuho Financial Group Inc. revealed its net balance fell into the
red in the nine months through December, while more than halving its profit
estimate for the full year ending March 31. Meanwhile, Sumitomo Mitsui
Financial Group Inc. said Wednesday its group net profit plunged over 70
percent during the same period.
The troublesome results for two of Japan's three mega-banking groups were due
largely to the losses incurred on stock and other investments.
After the BOJ's announcement, Mizuho's stock briefly jumped nearly 9 percent in
trading at the Tokyo Stock Exchange.
The largest of the three, Mitsubishi UFJ Financial Group Inc., which pumped $9
billion into Morgan Stanley in October for a 21 percent stake in the struggling
U.S. investment bank, will announce its third-quarter results later this week.
Analysts said that if banks suffer losses on stock investments, it adversely
affects their capital adequacy and finally leads to tighter lending.
''The BOJ is apparently aiming to help banks offload risky shares without
destroying markets,'' Sato said.
But Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said,
''There is uncertainty over whether banks can really move to finalize their
losses by accepting the BOJ's offer.''
Many banks class their depressed shareholdings and record falls in their value
as unrealized losses. Once they sell those stocks, the fall in value must be
recorded as a loss.
''The BOJ's action was positive for the market,'' said a hedge fund manager,
who asked not to be named. ''But there is a view that the management of banks
may loath being blamed for their responsibility'' for such losses, the manager
said.
Takahide Kiuchi, chief economist at Nomura Securities Co., said the central
bank's decision may have taken market participants aback by its timing, but it
is doubtful whether the move will help to turn around the current situation as
a whole.
The BOJ said it will buy 1 trillion yen worth of shares with a rating of
BBB-minus or higher from banks in an emergency measure effective through April
2010.
Kiuchi said in his report that the amount is small, and that the policy ''would
not have any clear impact on banks' balance sheets and the demand-supply
balance in stock markets.''
==Kyodo
2009-02-03 22:11:43