The Bank of Japan said yesterday it will have injected ¥1 trillion (US$8.6 billion) into Japanese financial institutions by the end of the day through its operations in the money market, Kyodo news agency quoted financial sources as saying.
The move followed the Japanese central bank's injection of ¥1 trillion into Japanese financial institutions Tuesday after the key Nikkei index hit the lowest level in 20 years.
On Tuesday, the Nikkei closed at 7,862.43, down 179.83 points, or 2.24 percent. It was the lowest closing since Jan. 25, 1983, when it ended at 7,803.18.
The central bank's repeated action is believed to shield the banking system from growing instability amid concerns over war in Iraq and the fragile stock market.
Japanese Prime Minister Junichiro Koizumi has repeatedly said the government will not allow the latest bout of stock declines to spark a financial crisis in Japan.
"The government will take steps to boost the stock market together with the Bank of Japan," Koizumi said.
Yesterday the Nikkei Stock Average, the main index for Asia's biggest stock market, recovered slightly, closing up 1.03 percent at 7,943.04 points.
But analysts warn a strong recovery is unlikely.
"Japan's crisis has grown chronic," said Yasushi Okada, chief economist at Credit Suisse First Boston in Tokyo. "It's barely averting the toppling of top banks."
Japan's banks, which are major stock holders, are being sorely battered by the nose-diving shares. As a result of the nation's decade-long slowdown, they are burdened with massive bad debts the government estimates at ¥40 trillion (US$342 billion).
The uncertainties over Iraq couldn't have come at a worse time for Japan.
The country has been struggling to lift itself out of its economic woes on the back of exports to the US and the rest of Asia. That scenario is likely to turn quickly awry if war begins.
Crude oil prices are already on the rise, trading at about US$36 a barrel lately, and a prolonged war in Iraq is almost certain to hurt Japan, which imports virtually all its oil -- 86 percent of it from the Middle East.
Some analysts are beginning to worry about an energy shortage in Japan during the summer months, when consumption for air conditioning is high.
The Japanese government, which is generally slow in responding to stock market problems, has repeatedly stressed it stands ready to avert a financial crisis.
Tokyo has the authority to pump ¥15 trillion (US$128 billion) in emergency public money to prop up collapsing banks to avoid the repeat of a financial crisis that struck in 1997 to 1998, when two major banks failed.
Lawmakers, ministers and business leaders have called for the central bank to do more, such as buying stock funds.
The Bank of Japan, which has pushed down interest rates to near zero since 1999, has been pumping extra cash into the financial system. It boosted the amount of excess money by an extra ¥700 billion (US$6 billion) yesterday to ¥22.3 trillion (US$191 billion).
"Sliding stocks are a global phenomenon, but the damage is especially great in Japan because of the bad-debt problem," Japan's Nihon Keizai Shimbun said in an editorial yesterday.
Japan's top four banks fell into the red last fiscal year, but only two of the "Big Four" had forecast losses for fiscal 2002, which ends March 31. Now, the other two may rack up losses as well.
The banks had all been trying to shore up their finances and speed up bad loan write-offs.
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