Japan’s government is considering buying shares directly from the market using public funds, the Nikkei business daily reported on Wednesday, amid growing fears for the economy as sliding stocks erode the capital of banks.
Finance Minister Kaoru Yosano said on Tuesday the government was looking at expanding share buying and other measures to support the stock market. With Tokyo’s Nikkei average not far from 26-year lows, the newspaper said the government may go beyond current buying of shares held by banks and step into the market.
Lawmakers in Japan’s ruling parties were looking for ways to boost share prices by March 31, the financial year balance date for many companies, Kyodo news agency said. Bank of Japan Governor Masaaki Shirakawa also weighed in, saying policy-makers need to be careful of damaging a weakening economy further by forcing banks to maintain set capital requirements.
Japan has allowed domestic bank operators not to deduct losses on shares from capital. But the country’s big banks, large holders of stocks, have been forced to raise billions of dollars in new capital as their holdings slide in value. “If many banks try to raise their capital at the same time, that could worsen the economy further,” Shirakawa said in a speech.
Fearing that shrinking balance sheets at banks will force them to curtail lending, the Bank of Japan already has a ¥1 trillion ($10.30 billion) scheme to buy stocks from them. But a government plan for a separate ¥20 trillion program to buy stocks from banks has stalled in parliament.
The Nikkei newspaper said that after parliament approved the government program it would be revised to include buying of exchange-traded funds and shares directly from the market.
Hopes of government buying bolstered a rally in Tokyo stocks on Wednesday, market players said, adding to gains by exporters from a softer yen as the Nikkei rose 1.6%. “Although the market can’t get back in a full-fledged upward trend as long as fundamentals don’t change, the report will likely help soothe panic selling for now,” said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
The purchases would be made through the Banks’ Shareholding Purchase Corp, set up to help revive Japan’s banking sector, which was burdened by bad loans after a 1990s recession and the bursting of the global tech bubble, the paper said.
The state agency would finance purchases by procuring funds from commercial banks and other institutions, with the government guaranteeing principal and interest payments, the Nikkei said in its report, which did not cite sources.
Another proposal under consideration is the joint launch of a new stock-buying organization by the government and the private sector, the Nikkei said. (Reuters)