BOJ Buys 112 Million Yen in Stocks, Fraction of Amount on Offer

By Mayumi Otsuma

March 12 (Bloomberg) -- The Bank of Japan bought 112 million yen ($1.3 million) in stocks from lenders, a fraction of the amount it set aside last month to help financial institutions offload their shareholdings.

The purchases amount to 0.01 percent of the 1 trillion yen of shares it plans to buy until April 2010 to stem a decline in banks’ capital as the stock market slumps, according to data released by the central bank today.

The Bank of Japan commenced the program on Feb. 23 to help banks lend more to businesses strapped for cash amid a deepening recession. Still, economists say lenders are reluctant to reduce their share portfolios and realize losses in a stock market that has fallen 43 percent in the past year.

“If commercial banks sell shares at the current prices, they have to realize a large amount of losses, which is discouraging them from using the program,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “This stock-purchasing program does offer a meaningful safety net, but it may be hard to expect it to have a huge effect.”

The central bank also started buying commercial paper and corporate bonds this year, and last December began accepting lower-grade securities as collateral for loans to banks. Shinke said those efforts may be more successful in lowering borrowing costs for businesses.

The spread on three-month commercial paper issued by companies rated A1 against government financing bills of the same maturity narrowed to 32 basis points yesterday from 141 before the bank’s Dec. 19 announcement that it will buy the debt. It’s still higher than the 12.5 basis points in September.

The central bank is ready to expand the programs to shore up the economy if necessary, Deputy Governor Hirohide Yamaguchi said in an interview last week.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net