The Bank of Japan will examine boosting its capital to guard against possible losses it could incur from its purchases of commercial paper and corporate bonds, sources with knowledge of the matter said yesterday.
Any such move would help improve the central bank's balance sheet and may give it room to take further policy action if the country's recession, its worst since the Second World War, deepens.
The central bank currently sets aside five per cent of its profits as capital and pays the rest to state coffers. Under the BoJ law, it can increase this ratio upon approval from the finance minister. The BoJ is examining raising the ratio to 15 per cent from five per cent and maintaining this ratio for several years until the financial crisis settles, the Nikkei business daily reported without citing sources. If this ratio is maintained for three years, that could increase the BoJ's capital by nearly ¥200 billion (Dh7.32bn), it said.
The sources with knowledge of the matter told Reuters that the BoJ is considering a capital increase but did not reveal details.
The central bank hopes to decide on the size of the capital increase by the end of this month and seek approval from the finance minister in early May, the Nikkei said.
The BoJ has been buying commercial paper and corporate bonds from banks to make it easier for companies, faced with collapsing sales and profits, to help raise cash.
While that has eased funding conditions to some extent, the money has not reached cash-strapped small companies as much as the BoJ hopes.
Some analysts have thus called on the BoJ to buy riskier corporate debt with lower credit ratings, although the central bank has been hesitant to do so on fear of incurring huge losses.
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