The Bank of Japan said Tuesday that after an almost 4 1/2-year hiatus it will resume buying shares held by banks in an attempt to bolster their balance sheets damaged by plunging stock markets.
“Risks caused by stock price volatility have amounted to a serious problem” to the Japanese financial system, BOJ Gov. Masaaki Shirakawa told reporters after the central bank unveiled the plan to buy shares worth ¥1 trillion held by commercial banks.
The stock purchases would function as a “safety valve” to stabilize the system, he said at a news conference.
The emergency policy will be in effect through April next year. The BOJ is expected to begin the purchase before the current business year ends next month.
The bank will purchase listed stocks with a rating of BBB-minus or higher at market price. The BOJ is setting a purchase limit per issuer — ¥250 billion — to ensure the diversification of its purchased stocks.
The BOJ said it will not sell purchased stocks until the end of March 2012. It will complete the offloading of stocks by the end of September 2017.
The move comes as part of the BOJ’s efforts to encourage those lenders to offer more loans at a time when companies are suffering from a credit crunch, facing trouble raising operating capital as their business year draws to a close on March 31.
The BOJ last conducted such a measure between November 2002 and September 2004. It purchased some ¥2 trillion worth of bank-held shares while offering to buy a total of ¥3 trillion.
The BOJ’s latest action coincides with the recent government move to restart the purchase of stocks held by financial institutions through Banks’ Shareholdings Purchase Corp. The government’s old scheme expired in September 2006.
With the latest policy, the BOJ hopes it will be able to help “support financial institutions’ future endeavors to reduce market risk associated with stockholdings, and through which to ensure the stability of the financial system,” the central bank said in its statement.