Tuesday, May 5, 2009

The Debts of the Lenders: BOJ To Save 15% of Surplus Funds

Important longer term implications for the dollar. The Fed and Treasury have traditionally relied on lenders such as Japan and China to fund the US deficit through treasury purchases.

TOKYO (Nikkei)--The Bank of Japan plans to channel 15% of its surplus funds from fiscal 2008 into statutory reserves in response to increased risk exposure from programs aimed at stabilizing the financial system, the Nikkei reported in its Wednesday edition.

The central bank must allocate 5% of each year's surplus for legally mandated reserves, with most of the remainder returned to the nation's coffers. However, the percentage can be raised by consent of the finance minister.

The BOJ's capital ratio stands at the mid-7% range, below the 8-12% target. Purchases of commercial paper and corporate bonds, tied to initiatives targeting the financial crisis, have raised the bank's exposure to potential losses. A decline in its finances would undermine confidence in the yen.


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