BOJ's Shirakawa urges banks to cut shareholdings to reduce risk+

KANAZAWA, Japan, May 25 Kyodo -
Bank of Japan Governor Masaaki Shirakawa called Monday on Japanese banks to
reduce their large stockholdings, a major factor that made them incur huge
losses in fiscal 2008 amid the stock market turbulence.

''Risks associated with their stock holdings are threatening the Japanese
economy the most now,'' Shirakawa said at a press conference after giving a
speech to local business leaders in Kanazawa, Ishikawa Prefecture.
''We believe it is desirable that they should reduce risks on their stock
holdings a little more,'' he said.
Japanese banks have traditionally held stakes in clients to cement ties, a
practice that makes them vulnerable to stock market fluctuations. The BOJ has
resumed buying stocks held by banks and introduced a scheme to offer up to 1
trillion yen to commercial banks in subordinated loans to help cash-strapped
financial institutions to lend more to businesses.
Shirakawa also said in the speech, ''The sharp deterioration in economic and
financial conditions in Japan and abroad since last autumn is starting to level
out and there is the prospect of a mild recovery ahead.''
But, adjustments of various excesses that had accumulated worldwide over the
past several years could take ''considerable time,'' he said, adding, ''It is
very likely that the severe economic conditions will continue for some time.''
''The recovery therefore will inevitably be mild and accompanied by high
uncertainty,'' Shirakawa said.
The key to the prospect for the global economy is how much strength that final
demand can restore, he said. ''With regard to this, we are not exactly
optimistic. We are rather cautious.''
As for North Korea's nuclear test, Shirakawa said there has apparently been no
major impact on the financial markets.
Turning to the domestic economy, Shirakawa said it is likely to recover
moderately from the latter half of fiscal 2009 on the back of the global
recovery, noting recent signs of improvement in export and production due
partly to demand recovery in China.
But caution on downside risks to the domestic economy would remain necessary as
domestic demand, or spending by companies and consumers, is being adversely
affected with a lag by a steep decline in production, he said.
He also called on companies to accelerate efforts to improve productivity to
help Japan out of the recession, saying the government and central bankers'
fiscal and monetary policies merely assume a role of supporters.
''Japan's economy cannot be expected to prosper without improving its
productivity through innovation,'' Shirakawa said.
Last week, the BOJ raised its assessment of the nation's economy for the first
time in two years and 10 months amid emerging signs of improvement in such
areas as industrial output, signaling that the worst may be over for the
world's second-largest economy, which suffered a record slump in the period
from January to March.
==Kyodo