TOKYO, April 22 - Finance Minister Masajuro Shiokawa said on Tuesday the ministry had approved a request by the Bank of Japan to increase its reserves to offset potential purchases of riskier assets aimed at enhancing monetary policy. Because raising its reserves would mean that the BOJ would contribute less to government coffers, the central bank sought formal approval from the Ministry of Finance (MOF). "We approved a request on Monday," Shiokawa told a news conference. "But we also asked that the BOJ review the process every year." The BOJ Law, revised in 1998, says the central bank must set aside five percent of its net income as reserves but that it can raise that amount with the finance minister's approval. It was the first such request since the BOJ began operating under the revised law, which granted it independence.
"We approved the request because the BOJ wants to take more aggressive steps, in line with the government's stance," Shiokawa said. The BOJ is considering temporarily buying securitised assets, especially loans to smaller firms, in its money market operations to help improve funding for them. But the move has also raised concerns over the central bank's capital adequacy, a gauge of a bank's financial health. The BOJ's capital adequacy ratio stood at 7.62 percent at the end of last September, below the required 8-12 percent range.
The BOJ has also been buying shares directly from commercial banks since November in a programme aimed at giving the ailing banking sector some relief from stock market volatility. Asked about a possible decline in tax revenues due to the BOJ's request to raise its reserves, Shiokawa said: "Depending on the economic situation and if the BOJ's assets rise (in value), there could be more payments (to the government). There is no need to maintain a rigid stance." In 2001/02, the BOJ set aside 73.1 billion yen, or five percent of its 1.4636 trillion yen net income, as reserves. It paid 1.3904 trillion yen to the government. With the MOF's approval, the BOJ's Policy Board will now decide by how much the central bank will boost its reserves, Shiokawa said.//