The balance of the Bank of Japan’s assets rocketed 33.2 percent higher to 106.2 trillion yen in fiscal 1999 due mainly to huge lending to the money market arising from its zero-interest rate policy, the BOJ said Tuesday.
The central bank has been funneling huge amounts of liquidity to money-market participants by purchasing their securities holdings — from bonds to financing bills — since Feb. 12, 1999, when it adopted its current monetary policy.
The BOJ said its assets ballooned in the year through March 31 as a result of its policy of guiding the overnight call money lending rate to essentially zero. The surplus assets were also necessary in case the millennium bug caused computer breakdowns at financial institutions.
The bank’s 33.7 percent fall in pretax profit from a year before to 1.192 trillion yen was attributed to the channeling of profits into its loan-loss reserve account to cover possible loan-losses arising from its outstanding loans to Yamaichi Securities Co.
The company, once one of Japan’s four major brokerages, was declared bankrupt by a court in June 1999 — almost two years after huge losses sent it belly up in November 1997.
BOJ officials said the central bank also had to set aside large loan-loss provisions in case its unsecured loans to the insolvent Kokumin Bank — now under the control of a state-appointed administrator — turn sour.
The BOJ’s surplus funds — which correspond to a commercial bank’s net profit — declined 24.4 percent to 1.143 trillion yen.
The BOJ’s annual surplus-funds transfer to the national coffers came to 1.086 trillion yen as it had to retain a fraction of its earnings to build up its net worth in accordance with a legal provision to that effect.
The balance of lending to Deposit Insurance Corp., the guardian of the nation’s banking-system stability, plummeted by more than 6 trillion yen to 268.9 billion yen. The reduction was attributed to DIC’s policy of relying on borrowings from private-sector financial institutions instead of from the BOJ.
In the preceding fiscal year, the balance had shot up to more than 6.6 trillion yen because DIC borrowed heavily from the BOJ to recapitalize the depleted capital bases of major banks and to extend huge loans to the collapsed Long-Term Credit Bank of Japan to help it pay for its obligations, the officials added.