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Bank of Japan looks to stock purchases as new stimulus measure

November 3, 2010 |  9:55 pm

The Federal Reserve has sparked heated debate about the wisdom of its new plan to buy $600 billion in Treasury bonds as a way to pump money into the economy.

The Bank of Japan, which has been trying for two decades to foster sustained growth of its deflation-riddled economy, is well beyond buying government bonds. Now it’s focusing on stock purchases as a tool to breathe new life into the economy.

From Bloomberg News:

The Bank of Japan’s planned purchases of real-estate investment trusts and exchange-traded funds may bolster investor confidence and support markets that have failed to recover ground lost since the global financial crisis.

Governor Masaaki Shirakawa and his policy board will start a two-day policy meeting [Thursday] to discuss the purchases, which are part of a broader 5 trillion-yen ($62 billion) fund unveiled last month.

The planned buys “are an endorsement of the securities and encourage investors to participate in the market,” said Hide Ichii, a Tokyo-based analyst at CBRE Global Real Estate Securities, which manages over $2.5 billion of property stocks and real-estate investment trusts. “A surge in REIT prices will spark real-estate transactions and can eventually help shore up land prices.”

A central bank buying stocks for its own portfolio? That’s the nightmare scenario of so-called quantitative easing: If government-bond purchases don’t get the job done, do desperate policymakers start looking for other assets to soak up with money they create out of thin air?

-- Tom Petruno