BOJ Should Buy Stocks to Aid Market, Nikko Asset Says

By Patrick Rial

Oct. 10 (Bloomberg) -- The Bank of Japan should purchase stocks to bolster share prices as the nation's equity market heads toward the steepest yearly decline on record, according to Nikko Asset Management Co.

The government last authorized the purchase of stocks in 2002 and 2003. The move helped the Nikkei 225 Stock Average rebound from the two-decade low that it touched in April 2003.

The Nikkei has lost 25 percent this week and the drop in 2008 is set to eclipse the 39 percent slide in 1990 when Japan's asset bubble burst. The BOJ, which holds 100 trillion yen ($1.01 trillion) in assets, spent 2.02 trillion yen on equity stakes between 2002 and 2004.

``The Bank of Japan should consider buying stocks again,'' said John Vail, who helps oversee about $106 billion as head of global strategy at Nikko Asset in Tokyo. ``It's a way to prevent the downward spiral of asset markets.''

The last time the central bank bought shares in companies it ``made a boatload of money,'' Vail said. The BOJ bought equity holdings from banks between 2002 and 2004 as the unwinding of cross shareholdings threatened to flood the market. The paper gains on the BOJ's stakes rose to 714 billion yen as of March 31, with the Nikkei 225 up 64 percent from its 2003 low, according to the central bank.

``This is a logical step and everybody praised it the last time and they'll praise it again because it could really help the situation,'' said Vail. ``I imagine they are considering it. They'd be foolish not to.''

The Bank of Japan has not announced any specific policy measures and did not participate in a coordinated reduction in interest rates spearheaded by the U.S. Federal Reserve on Oct. 8.

The ``Governor of the Bank of Japan has instructed its staff to swiftly examine possible ways to further enhance the effectiveness of monetary operations, including those pertaining to BOJ reserve system,'' the bank said in a statement on Oct. 8. A BOJ spokesman declined to comment on the possibility of buying shares.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.