27 October 2008

Japan to raise capital injection fund to $110 bn

Japan will sharply increase the maximum amount of public funds that can be injected into ailing domestic banks from two to 10 trillion yen, economic and fiscal policy minister Kaoru Yosano said.

Japan will sharply increase the maximum amount of public funds that can be injected into ailing domestic banks from two to 10 trillion yen (110 bn dollars), economic and fiscal policy minister Kaoru Yosano said on Sunday.

 

Prime Minister Taro Aso's cabinet is expected to announce an outline of the fresh package, part of emergency measures to stabilise the nation's financial markets, as early as later Sunday.

 

The existing ceiling of two trillion yen for the bank recapitalisation is "quite insufficient," Yosano said in a television interview. "I think it's going to be around 10 trillion yen," he added. But Yosano insisted Japan was less affected by the global financial crisis than other big economies, adding: "We are absolutely not in a situation where we will see Japanese banks collapse one after another."

 

The fresh package of measures is also expected to allow the government-run Banks' Shareholdings Purchase Corp. to resume buying stocks unloaded by banks in a bid to support ailing managements, media reports said.

 

The body was set up in January 2002 during an earlier financial crisis and continued operations through to 2006, at which point its holdings were valued at around 1.6 trillion yen.

 

Under the measures, the government will also ask the Bank of Japan to buy shares from banks, while planning to introduce stricter regulations for stock trading, set more flexible fair value accounting rules and revise the capital ratio requirements for banks.

 

The government had already announced a first step of market stabilisation measures in mid-October, including easing stock buyback rules and temporarily suspending sales of government-held shareholdings.

 

Obversers say that by presenting a variety of measures and highlighting its willingness to tap all available resources, the government is trying to ease mounting concerns about the stock market and financial institutions. 

 

© The Economic Times