TOKYO: The Bank of Japan (BOJ) said yesterday it would pour even more money into Japan's cash-flooded money markets to soothe concerns over instability in the wake of the government's move to rescue the nation's fifth-largest bank.
Easing monetary policy for the second month in a row, the BOJ raised its target for current account deposits that banks keep at the central bank to 27 trillion-30 trillion yen, from 22 trillion-27 trillion, way above the obligatory reserves of around 5 trillion they are required to keep.
This ensures there will be plenty of cash available for banks if problems in the financial system – highlighted by capital adequacy difficulties at Resona Bank – were to spread.
In theory, it should also stimulate banks to use the money for lending, since the deposits at the central bank don't earn any interest. But analysts doubted whether it would ultimately help fix the problems in the financial system or the economy.
“I would say the BOJ tried to show its determination to take decisive action to avert a crisis in the money market, expecting it may have some 'announcement effect',” said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC. “But this will not have any impact on the real economy.”
The move came on the heels of a government decision at the weekend to inject money – perhaps as much as 2 trillion yen – into Resona Holdings, parent of Resona Bank.
The bank's capital had fallen below the level to allow it to continue to legally operate, and the government said it would act to prevent the possibility of the problems spreading.
“Although financial markets have been generally calm, there is no knowing how they could react to shocks in the future after the Resona steps, and we want to be fully prepared,” BOJ governor Toshihiko Fukui said after the BOJ's two-day board meeting.
“Based on such a view, we felt the need to make the BOJ's commitment and policy stance clear.”
Government bonds reacted positively to the move, with the yield on the benchmark 10-year JGB at 0.59%, down one basis point from Monday. The Nikkei average closed up 0.25% at 8,059.48. – Reuters