BOJ Mulling Beefing Up Capital Base

Tokyo, April 13 (Jiji Press)--The Bank of Japan is considering
strengthening its capital base in case the central bank suffers losses on
financial assets it buys to support corporate financing, informed sources
have said.

The BOJ earlier this year started to buy commercial paper and
corporate bonds outright from financial institutions through its money
market operations as emergency measures to assist companies facing
difficulties raising funds.
Should any of the issuing companies go bust, however, the value of
the BOJ-held assets would deteriorate and confidence in the bank notes
issued by the central bank could fall as a result.
In addition to the outright CP and bond purchases, the BOJ has
resumed its program to buy shares held by commercial banks while planning to
start in May to provide subordinated loans to banks to help raise their
capital bases.
The BOJ is specifically considering raising the proportion of its
net income that can be set aside as its capital reserves from the current 5
pct as stipulated in the BOJ Law, the sources said.
Since a hike in the ratio would cause a drop in funds transferred
from the BOJ to the state coffers, the central bank plans to hold
consultations with the Finance Ministry toward the announcement of its
fiscal 2008 earnings in late May, according to the sources.
Under the law, the BOJ is required to transfer all of its annual
net income except the amounts set aside as capital reserves and for dividend
payments to the government coffers. But when necessary, the BOJ can take
more than 5 pct of its net income as capital reserves upon approval from the
finance minister.
In fiscal 2007, the BOJ posted net income of 640.7 billion yen and
set aside 32 billion yen as capital reserves. Its capital reserves totaled
2,614.9 billion yen at the end of the year while its capital-to-asset ratio
stood at 7.47 pct.
The BOJ was allowed to set aside 15 pct of its net income as
capital reserves between fiscal 2002 and 2004, when it carried out purchases
of bank-held shares.