Tokyo, Sept. 18 (Bloomberg) -- The Bank of Japan will buy stocks from banks for the first time, trying to rescue lenders laden with $200 billion of shares, in what amounts to the third industry bailout in four years.
``The bank will buy directly from financial institutions,'' Governor Masaru Hayami said at a press conference. ``We want to help them reduce the impact of falling stocks.''
The move would bolster banks such as UFJ Holdings Inc., which must subtract stock-market losses from their capital. It highlights the failure of Prime Minister Junichiro Koizumi's vow to clean up $430 billion of bad debt that has paralyzed the banking system and mired the world's second-largest economy in three recessions in a decade.
``It's not something a central bank should be doing,'' said Karen Hawkett, an economist at Stone & McCarthy Research in Sydney. ``It should embarrass the government.''
The government has intervened to rescue banks twice before. In 1998 and 1999, it injected a total of 9.3 trillion yen to shore up banks' capital as they disposed of bad loans. Koizumi tomorrow is expected to unveil a package of measures to boost the economy.
In March, Japanese stocks rallied after the government imposed curbs on short-selling -- a bet that share prices will decline -- and signaled it was ready to buy stocks if needed. The Topix Index ended the fiscal year on March 31 about 15 percent higher than its February low.
After Hayami's comments, bonds plummeted, with yields posting their biggest rise in more than 3 1/2 years. The 84-member Topix Banks Index jumped 1.7 percent after having fallen as much as 2.8 percent before the remarks, which came just before the close of trading in Tokyo.
Nikkei's Decline
The central bank will buy stocks at market prices ``as soon as possible'' from between 10 and 20 listed banks over the next year or two, Hayami said. He didn't say how large the purchases would be.
Banks hold about 25 trillion yen in stocks, of which about 8 trillion yen could be targets for purchase, Bank of Japan Executive Director Takahiro Mitani said.
Losses on stockholdings at Japan's seven biggest lenders more than tripled since March 31 to 4.07 trillion yen as of Sept. 3, according to Daiwa Institute of Research. That's when the Nikkei 225 Stock Average fell to its lowest since Sept. 19, 1983.
UFJ was the worst-performing stock among Nikkei 225 members over the past year, falling 60 percent. The lender, which posted the second-worst loss in Japanese banking history for the year ended March 31, said that as of June 30 its shareholdings were worth 105 billion yen less than their purchase price.
Hong Kong Purchases
Mizuho Holdings Inc., the nation's biggest bank, has fallen 47 percent in the past year. The bank's unrealized stock losses narrowed to 44.6 billion yen as of June 30 from a 754.6 billion yen loss due to accounting treatments related to the merger of its three main units.
Today, UFJ shares rose 3.6 percent and Mizuho's rose 2.9 percent.
Japan's banks are trying to pare holdings in other companies as stock price falls erode their capital-adequacy ratios -- measures of how much capital has to be set aside against risk- weighted assets -- to near minimums.
The Bank of Japan's move is reminiscent of purchases of stocks by Hong Kong's government in 1998, during the Asian financial crisis. Hong Kong spent HK$118 billion ($15 billion) to buy more than 7 percent of the shares comprising the benchmark Hang Seng Index to defend the local currency's peg to the U.S. dollar.
Calls for Action
Purchases of shares by central banks are virtually unknown among advanced economies. The European Central Bank has never bought shares, and the U.S. Federal Reserve's authority to buy securities doesn't include stocks.
The bank of Japan's share purchases will ``lead to stabilizing the financial industry,'' said Muneyuki Tsuji, who manages 15 billion yen ($123 million) in stocks at Japan Investment Trust Management Co. and has been buying bank shares. The Bank of Japan ``finally lived up to my expectations.''
Cabinet ministers and members of the ruling Liberal Democratic Party have been pressing the central bank to act. Hayami rejected calls to buy exchange-traded funds, which are index-based investments that allow buying and selling of entire portfolios of stocks in a single security.
``Hayami has my full support,'' Finance Minister Masajuro Shiokawa said at a press conference today. ``We will extend any cooperation needed.''
Hayami has come close to exhausting his policy options. He and his central bank colleagues cut interest rates almost to zero 18 months ago and have made trillions of yen available to banks in an attempt to end the slide in lending and spur economic growth. The central bank kept policy unchanged today.
The government's package, to be announced tomorrow, won't include the use of public money to replenish the capital of banks that write off bad debts, Financial Services Minister Hakuo Yanagisawa said.