Fukui: BoJ cannot take 'limitless risks'

The new head of Japan's central bank has asserted his independence from the government - and brought the rally in banking shares to a close along the way.

In a rare group interview Toshihiko Fukui, who returned to the Bank of Japan in May after five years in the private sector, poured cold water on speculation that the Bank would fall in with government demands to buy banking shares.

"That's just an idea designed to support bank shares," he said, drawing a distinction with the Bank's programme of taking banks' shareholdings in other companies off their hands.

The buyback programme is intended to ease the pressure on bank balance sheets caused by the steep slide in the value of their equity and property portfolios in recent years.

At least we can communicate with him in Japanese Taro Aso LDP Policy Board Chairman

Ten years of downturn - and four recessions along the way - mean the banks are sitting on huge bad loans, secured against almost-worthless assets and only sustained by near-zero interest rates.

"Our primary duty is to help provide a comfortable environment for private sector companies and banks to operate," Mr Fukui told reporters.

"If we do more, it clearly goes too far beyond our jurisdiction... The central bank cannot take limitless risk, which is a job that only the government can do."

Down to earth

His comments helped bring the week's rally in financial stocks to a close, as investors took the opportunity to take their profits.

By midday, Sumitomo Mitsui shares were down 3.5%, with the overall Topix banking index down 0.9% after a 7.6% gain over the previous two sessions.

Bank shares are heading back down

The hope had been that the expansion of the share-buying programme to 3 trillion yen from two trillion would also signal a move into banking shares themselves.

The Bank of Japan has been more activist than its conservative reputation would suggest since Mr Fukui's appointment.

That has put him in ruling Liberal Democratic Party politicians' good books, despite his resistance to their calls for the buyback programme to embrace bank shares themselves.

"At least we can communicate with him in Japanese," said LDP Policy Board Chairman Taro Aso in a recent speech, referring to the reluctance of former Bank governor Masaru Hayami even to respond to many government requests.