Zeev's Turnips Patch-No Politics (ZEEV)

[XBrit]

BOJ - Japan "on brink of a full-blown crisis".

(Very strong words for a central banker, IMO.)

Financial Times

BoJ takes gamble to avert financial crisis
By David Pilling in Tokyo
Published: September 24 2002 21:59

Japan's central bank is trying to shock the government and banks into action in a last-ditch gamble to avert a crisis in the country's financial system, a senior Bank of Japan official said on Tuesday.

The bank's announcement last week that it would buy shares from financial institutions was a high-risk move driven by its increasing frustration at government inaction, the official added.

"This is our independent decision based on our serious concern about the state of the financial system," said the official. "We are well aware of the risks to our balance sheet. We never meant to do this. But unusual circumstances call for unusual measures."

Although the Japanese banking system has been battling for years under the weight of huge bad debts, the BoJ believes it is now on the brink of a full-blown crisis that could have a serious impact on the global economy.

"We think that now might be the last chance. We should have done this six months or a year ago," said the official.

Last week the BoJ stunned markets by announcing it would purchase shares from banks to allow them to accelerate the disposal of trillions of yen in bad loans. Share purchases, up to a total of about ¥3,000bn (€24.8bn), will start in the next few weeks and continue for up to two years. The BoJ is prepared for the possibility of losses deriving from a further fall in equity prices.

Banks have been told to unwind their cross-shareholdings, but their need to offload shares has helped drive stock markets towards 20-year lows.

There is no guarantee that banks will sell shares at depressed levels to the BoJ. "We are not 100 per cent sure that this approach will work. It's a big gamble," the official said.

Nor is it clear how the government will respond. Share prices fell last week when Junichiro Koizumi, prime minister, made it clear he did not have any specific measures to complement the BoJ's action. "The response by the government to [previous] warnings by the BoJ has been lukewarm," said the official.

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