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Not much punch in the BOJ
bowl
By Richard Hanson
TOKYO
- Masaru Hayami, the 77-year-old governor of the Bank of
Japan (BOJ), has a veteran central banker's knack for
throwing a party for a stock market.
On
Wednesday, Hayami dropped an unprecedented bombshell
that wowed the market and sent it higher.
BOJ,
he said, was planning to buy trillions of yen worth of
stocks, the kind traded on the Tokyo Stock Exchange,
from more than a dozen of Japan's largest (and
financially weakened) commercial banks to aid in
disposing many, many more trillions of non-performing
loans that weigh on their books and Japan's stagnant
economy.
The stock market bounced back delighted
by the unexpected boldness of the idea, even if it
needed some polishing up.
A day before, BOJ was
being berated for not coming up with some sort of
gerrymandered stock-buying scheme to prop up the banks
and the stock market, which traded recently at
19-year-low levels.
What Hayami proposed was a
venture into uncharted territory for a central bank by
purchasing stocks directly from the banks. This would
avoid the risk of collapsing their value further if sold
on the market, putting more pressure on their weakened
balance sheets.
In theory, this would enable
banks to free up more capital to dispose of the dud
loans. Cleaning up the bad-loan problems of the banks
would strengthen the financial system, and give the
economy a morale boost.
This in turn might put
new life into the sputtering campaign championed by
Prime Minister Junichiro Koizumi to enact a sweeping
political agenda of structural reform.
But by
Friday, it was clear that while the ideas and intentions
of the central bank had the makings of gala party,
Hayami had not yet brought out the punchbowl. When it
was understood that there were still hurdles to be
overcome before the share-buying scheme was ready to be
toasted, the stock market dropped nearly 2 percent.
This is not to fault Hayami. What it does
reflect is the still haphazard manner in which the
government has pursued economic policies in an effort to
boost prospects for growth beyond the low expectations
of the central bank. As the stock-buying plan was being
unveiled, the best that BOJ's September monthly economic
report, released on Thursday, could offer was that the
economy "has almost stabilized as whole" with the bright
sides on exports and cutting inventory stocks.
Hayami's bold initiative still has to overcome a
number of legal and technical obstacles. The Bank of
Japan Law, for example, does allow it to buy stocks.
Given the enthusiastic initial welcome, the problems
will no doubt be cleared, but the BOK officials say
there is no clear timetable so far.
What is
significant is that Hayami is trying to bring a party to
the nation, even if he has the ingrained conservative
instincts of a central bank boss with decades of
experience in crises such as the Nixon shocks of the
early 1970s. The novel idea of the central bank buying
stocks was in fact raised in a paper written by a Policy
Board member, Professor Kazuo Ueda, as early as last
December.
What is also clear is that Hayami, at
age 77, is tired of years of ineffective policy-making
within the government, which he thinks needs a wake-up
call instead of more dilly-dallying.
"If you
guys don't hurry up, my life will run out soon," Hayami
is quoted in the press as telling a secret group
assigned to work out measures to revitalize the
country's financial system. Hayami's term as governor
expires next March. That group was still working on the
nuts and bolts of new ideas to present to Koizumi, who
will need more than gimmicks to bolster the economy.
Koizumi has, however, been boosted in his own standing
in the popular-supports polls. That is at least a good
sign that his government may be able to make better
progress in pushing basic economic reform.
The
BOJ governor's idea received immediate praise from
political and business leaders. Others who are less
sanguine about the prospects for the banks to rid
themselves of their bad-loan portfolios look upon the
"shock" value of the proposal as a good thing. There
just isn't much substance to it yet. Filling the
punchbowl will take time.
(©2002 Asia Times
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