BOJ Falls into Red for First Time in Over 30 years
The Bank of Japan said on Thursday it fell into the red for the first time in over 30 years in the April-September period, as higher yields hit the central bank's massive bond holdings. The BOJ reported a net loss of 112.6 billion yen ($1.03 billion) for the first half of the fiscal year, compared with a profit of 288.5 billion yen in the same period a year earlier.
The main reason for the loss was a rise in long-term yields, which resulted in a 793.8 billion yen loss from the sale and redemption of government securities, it said. The BOJ said it was its first net loss since falling into the red in the second half of the fiscal year to March 1972, which was due to foreign exchange losses as the yen surged.
A recent rise in Japanese share prices boosted the valuation of its stock holdings. It has been temporarily buying stocks from banks to protect them from market fluctuations. But the overall results failed to soothe worries the central bank may be headed towards weaker financial health as it takes greater risks to help the economy. The BOJ said its capital adequacy ratio as of end-September fell to 7.38 percent from 7.62 percent at end-March. The BOJ buys 1.2 trillion yen a month in Japanese government bonds.
(TT's Take) The FSA has just announced it would be bailing out Ashikaga Bank, a regional bank with negative net equity. If the BOJ were a private bank, the FSA would soon be announcing that they would be bailing out the BOJ too. However, the BOJ (Chart) is also in control of the money supply, and can issue as much new money as it likes to pay its bills, and to continue intervening in the currency markets, sometimes in increments of as much as JPY1 trillion per day. What is in effect happening is massive reflation--with forex intervention, JGB purchases, ABS purchases and outright stock purchases from the banks.
