ID :
36751
Sun, 12/21/2008 - 00:37
Auther :
Shortlink :
https://oananews.org//node/36751
The shortlink copeid
FOCUS: BOJ's new policy may prove to be double-edged sword+
TOKYO, Dec. 20 Kyodo - When he announced a new set of measures to fight a worldwide economic slowdown and a financial turmoil Friday, Bank of Japan Governor Masaaki Shirakawa was not euphoric about the central bank sailing into uncharted waters, instead he kept a firm expression on his face.
The BOJ decided to accept credit risks of companies by purchasing outright
their commercial paper, CP, or short-term debt. It is a temporary move designed
to support corporate financing at a time when companies are facing difficulty
raising capital in financial markets due to the global credit crunch stemming
from the demise of Lehman Brothers Holdings Inc.
But experts say the new policy, which the BOJ never committed to even when the
Japanese economy was mired in severe deflation in the late 1990s, could worsen
the quality of the bank's assets, increase the burden on taxpayers and prove to
be a double-edged sword.
''We considered what contribution we can make with our tools,'' Shirakawa told
reporters after a two-day policy meeting of the BOJ Policy Board through
Friday, which also cut the key interest rate to 0.1 percent from 0.3 percent.
As for the plan to purchase CP outright, the governor said it was a ''grave''
decision and even said, ''Stepping into the field of shouldering companies'
credit risks is the most unconventional of the unconventional.''
Other than manipulating interest rates, the BOJ usually controls the flow of
funds in the country's financial system by adjusting the amount of government
bonds it purchases, as well as the balance of current account deposits held by
commercial banks and other financial institutions at the central bank.
At present, it only accepts eligible CP and other corporate debt as collateral
when lending to financial institutions under the agreement that they will buy
back the debt from the BOJ. That means the central bank is only involved in the
financing of companies indirectly, and it has little exposure to the risks.
Earlier this month, the BOJ unveiled a different set of policies to support
corporate financing, including accepting a wider range of collaterals and
introducing a new fund-supply operation. But the measures did not go as far as
taking such risks, and critics doubted there would be any immediate impact.
Under the latest policy, whose details -- such as whether the BOJ will purchase
CP directly from companies -- have yet to be decided, the bank will attempt to
make more funds accessible to companies, especially smaller businesses.
However, experts point to the negative side of the policy.
''I have apprehensions about a central bank accepting credit risks because it
may damage the bank's capital,'' said Teizo Taya, a former BOJ board member.
The BOJ ''may think it is just a temporary measure, but no one knows how long
(the BOJ) should accept CP,'' said Taya, who assumed one of the nine seats at
the decision-making body between 1999 and 2004.
On Friday, the BOJ also cut its key borrowing cost to 0.1 percent in a move
that appeared to be the result of intense government pressure.
The decision also followed recent sharp rises in the yen against the U.S.
dollar, with lawmakers worrying about a stronger yen increasingly damaging the
earnings of Japanese exporters. The BOJ's action was also taken after the U.S.
Federal Reserve introduced on Tuesday a near-zero interest rate policy that
resulted in sending the dollar even lower.
Those political and overseas developments added to the BOJ's woes and prompted
it to adopt a policy it did not want to, market analysts say.
Shirakawa and other BOJ executives were reluctant to cut the rate further,
after the bank lowered the target rate for unsecured overnight call money to
0.3 percent from 0.5 percent in October.
They pointed to ''various'' possible side effects on the financial system
resulting from a too-low interest rate.
That kind of thinking dominated within the bank until earlier this month, a BOJ
official said.
''The BOJ seems to have mobilized every possible measure at this moment,'' said
Koji Takeuchi, senior economist at the Mizuho Research Institute.
But Takeuchi doubts the rate cut will immediately turn around what is
developing in the currency market, as the Fed is expected to take more
credit-easing measures and the dollar is likely to keep losing ground.
On Friday, Shirakawa did not rule out the possibility of further rate cut.
A year ago, the BOJ did not hesitate to claim that Japan was immune from the
impact of the subprime mortgage crisis, compared to the U.S. and European
economies.
Now, however, it is evident the Japanese central bank can no longer just sit back.
''We will make the biggest possible contribution,'' Shirakawa said at the news
conference.
The shy but gentle smile that the professor-turned-governor showed when he took
office in April completely disappeared.
The BOJ decided to accept credit risks of companies by purchasing outright
their commercial paper, CP, or short-term debt. It is a temporary move designed
to support corporate financing at a time when companies are facing difficulty
raising capital in financial markets due to the global credit crunch stemming
from the demise of Lehman Brothers Holdings Inc.
But experts say the new policy, which the BOJ never committed to even when the
Japanese economy was mired in severe deflation in the late 1990s, could worsen
the quality of the bank's assets, increase the burden on taxpayers and prove to
be a double-edged sword.
''We considered what contribution we can make with our tools,'' Shirakawa told
reporters after a two-day policy meeting of the BOJ Policy Board through
Friday, which also cut the key interest rate to 0.1 percent from 0.3 percent.
As for the plan to purchase CP outright, the governor said it was a ''grave''
decision and even said, ''Stepping into the field of shouldering companies'
credit risks is the most unconventional of the unconventional.''
Other than manipulating interest rates, the BOJ usually controls the flow of
funds in the country's financial system by adjusting the amount of government
bonds it purchases, as well as the balance of current account deposits held by
commercial banks and other financial institutions at the central bank.
At present, it only accepts eligible CP and other corporate debt as collateral
when lending to financial institutions under the agreement that they will buy
back the debt from the BOJ. That means the central bank is only involved in the
financing of companies indirectly, and it has little exposure to the risks.
Earlier this month, the BOJ unveiled a different set of policies to support
corporate financing, including accepting a wider range of collaterals and
introducing a new fund-supply operation. But the measures did not go as far as
taking such risks, and critics doubted there would be any immediate impact.
Under the latest policy, whose details -- such as whether the BOJ will purchase
CP directly from companies -- have yet to be decided, the bank will attempt to
make more funds accessible to companies, especially smaller businesses.
However, experts point to the negative side of the policy.
''I have apprehensions about a central bank accepting credit risks because it
may damage the bank's capital,'' said Teizo Taya, a former BOJ board member.
The BOJ ''may think it is just a temporary measure, but no one knows how long
(the BOJ) should accept CP,'' said Taya, who assumed one of the nine seats at
the decision-making body between 1999 and 2004.
On Friday, the BOJ also cut its key borrowing cost to 0.1 percent in a move
that appeared to be the result of intense government pressure.
The decision also followed recent sharp rises in the yen against the U.S.
dollar, with lawmakers worrying about a stronger yen increasingly damaging the
earnings of Japanese exporters. The BOJ's action was also taken after the U.S.
Federal Reserve introduced on Tuesday a near-zero interest rate policy that
resulted in sending the dollar even lower.
Those political and overseas developments added to the BOJ's woes and prompted
it to adopt a policy it did not want to, market analysts say.
Shirakawa and other BOJ executives were reluctant to cut the rate further,
after the bank lowered the target rate for unsecured overnight call money to
0.3 percent from 0.5 percent in October.
They pointed to ''various'' possible side effects on the financial system
resulting from a too-low interest rate.
That kind of thinking dominated within the bank until earlier this month, a BOJ
official said.
''The BOJ seems to have mobilized every possible measure at this moment,'' said
Koji Takeuchi, senior economist at the Mizuho Research Institute.
But Takeuchi doubts the rate cut will immediately turn around what is
developing in the currency market, as the Fed is expected to take more
credit-easing measures and the dollar is likely to keep losing ground.
On Friday, Shirakawa did not rule out the possibility of further rate cut.
A year ago, the BOJ did not hesitate to claim that Japan was immune from the
impact of the subprime mortgage crisis, compared to the U.S. and European
economies.
Now, however, it is evident the Japanese central bank can no longer just sit back.
''We will make the biggest possible contribution,'' Shirakawa said at the news
conference.
The shy but gentle smile that the professor-turned-governor showed when he took
office in April completely disappeared.
