Tokyo, March 20 (Bloomberg) -- Toshihiko Fukui's first day as Bank of Japan governor included a request he increase, from $16.5 billion, purchases of shares owned by Mizuho Financial Group Inc. and other lenders to help shore up the stock market. The Liberal Democratic Party and two coalition partners are making the request, said Hideyuki Aizawa, who heads the LDP's anti- deflation panel. They may ask the central bank to double its purchases to about 4 trillion yen ($33 billion), he said, though they haven't decided on the size of the increase to be sought. The request is part of the coalition's proposal to bolster the Nikkei 225 Stock Average, which last week fell to a 20-year low. Politicians have put the onus on Fukui to support banks and inject cash into the economy to end five years of price declines.
``It just brings to the surface that the government itself isn't doing anything,'' said Muneyuki Tsuji, who manages 15 billion yen at Japan Investment Trust Management Co. ``The government itself should expand fiscal spending, whether it be in the form of public funds to banks or increasing public works.'' Losses from the 21 trillion yen of stock investments threaten to deplete capital at Japan's seven largest banks to below levels stipulated by the regulator. The government sparred with Fukui's predecessor, Masaru Hayami, who said it must also take steps to push banks to speed bad-loan disposals and help the economy to recover. The ruling parties will also ask the Bank of Japan to increase the amount of government bonds it purchases each month from 1.2 trillion yen. They will ask the central bank to purchase exchange-traded funds, which track stock-market benchmarks such as the Topix index.
Taxation, Accounting
Japanese officials also discussed changes to accounting and taxation rules that may give companies and banks more time to work out losses on stock and real estate investments. Their final proposal will be made on Monday, and submitted to the heads of the ruling parties on Tuesday, Aizawa said after attending a coalition meeting. Banks should be given two more years, from a 2004 deadline, to pare their stock investments, Aizawa said. ``Delaying the term for banks to unwind their shares is meaningless,'' said Naoko Nemoto, an analyst with Standard & Poor's. ``The bank shares are unstable because they hold too many shares.'' The government's own stock-buying agency, set up last year, should be changed, to encourage banks to sell more stock, Aizawa said. The parties will propose banning the Banks' Shareholdings Purchase Corp. from making banks set aside 8 percent of any proceeds from stock sales to cover potential losses when the corporation is wound up, Aizawa said. ``That's what's preventing the banks from selling shares to the corporation,'' Aizawa said.
Bank Stocks
The central bank had bought 906 billion yen of shares between November 29 and March 10, almost half of its target by September 30. The corporation bought about 150 billion yen of shares last year. The Topix banks index, which covers 84 banks, has declined 13 percent this year. Three of the five biggest banks revised profit forecasts to a loss. Resona Holdings Inc., the fifth-biggest bank, said additional stock declines would make recent fund-raising efforts redundant. Banks raised almost 2 trillion yen in recent weeks to help boost capital eroded by losses on bad loans and stockholdings. Earlier this week, Fukui said he'd consider raising the amount of shares the Bank of Japan buys from banks. Investment losses at Japan's seven-largest banks amounted to 5.84 trillion yen as of March 7, more than double the 2.86 trillion yen as of Sept. 30, according to Daiwa Institute of Research. The banks must subtract 60 percent of those losses from capital when they close their books for the year on March 31.
Stock Risk
Banks have welcomed increased purchases. ``It will have a good effect on the market,'' Masashi Teranishi, chairman of the Japanese Bankers Association, said on Tuesday. ``We still feel a great need to minimize the risk of holding stock.'' Separately, Aizawa said the coalition wants changes to accounting rules that force companies to value securities at market prices, not purchase prices. The change would make the accounting practice optional, he said. The coalition also wants to delay by two years the 2005 imposition of an accounting standard for evaluation losses on fixed assets such as land and properties, he said. The changes are both intended to stop companies from over- stating the value of their assets to shore up profits that have been eroded by three recessions in a decade.//www.quote.bloomberg.com