Megumi Fujikawa reports in The Wall Street Journal on the Bank of Japan’s efforts to prop up the country’s economy, writing:
The Bank of Japan said it would nearly triple its maximum holdings of corporate debt to ¥20 trillion ($186 billion), joining other global central banks in trying to prop up companies during the coronavirus pandemic.
The BOJ forecast that Japan’s economy would shrink between 3% and 5% in the year ending March 2021. With many companies seeing a sharp fall in revenue, central banks are concerned that a spiral of bankruptcies could result if borrowers don’t have ready access to funds.
“It is an extraordinary economic crisis that has caused restraints on both supply and demand,” said BOJ Gov. Haruhiko Kuroda.
The BOJ’s new target for corporate debt holdings, up from the previous maximum of ¥7.4 trillion, could help stabilize the market ahead of earnings reports in the next few weeks, which are likely to include losses at some companies, said Naomi Muguruma, an economist at Mitsubishi UFJ Morgan Stanley Securities.
The Nikkei Stock Average closed up 2.7% Monday, responding in part to the BOJ’s midday announcement.
The BOJ’s move continued a series of credit-market interventions by major central banks. The Federal Reserve pledged on April 9 to purchase corporate bonds recently downgraded to junk status, and the European Central Bank said it would accept some junk-rated bonds as collateral for its loans.
Japan’s central bank is already a big player in the stock market, thanks to purchases of exchange-traded funds that have built up for years. The new targets are set to give it similar status in corporate debt.
The BOJ said it would hold up to ¥10.5 trillion in corporate bonds. The total amount of outstanding corporate bonds stood at almost ¥70 trillion at the end of February, according to the Japan Securities Dealers Association. The BOJ’s limit for holdings of shorter-term debt called corporate paper—¥9.5 trillion—is nearly half the total outstanding amount of about ¥21 trillion as of March 31, according to Japan Securities Depository Center Inc.
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