Examination of Possible Purchase of Asset-Backed Securities
April 8, 2003
Bank of Japan
- Ample liquidity provision by the Bank of Japan has made a significant contribution to securing financial market stability and upholding the economy and prices.For the ample liquidity provision to effectively lead to economic expansion, however, it is deemed necessary to strengthen the transmission mechanism of monetary easing.
- The Bank decided the following at today's Monetary Policy Meeting (MPM) of the Policy Board.
- a) As a temporary measure, the Bank will examine the possible purchase of asset-backed securities (ABSs), including asset-backed commercial papers, mainly backed by those assets related to small and medium-sized enterprises, for money market operations.
- b) The Bank will seek market participants' views when developing thespecific design of a purchasing scheme.
- c) The specific design of the scheme will be discussed and decided at the MPM.
- Against the background of banks' weak financial intermediary function, today's decision has the objective to strengthen the effects of monetary easing by nurturing the development of the ABS market, thereby promoting smooth corporate financing.In this respect, it is expected that ABSs will play an important role by diversifying and transferring credit risks.
- Although private debt including ABSs has already been accepted as eligible collateral for money market operations and purchased under repurchase agreements by the Bank, outright purchase of private debt is an unprecedented measure for a central bank.The Bank will determine the specific design of the purchasing scheme considering the following: to what extent the purchase will strengthen the transmission mechanism; whether the purchase will not distort market mechanisms; and how to maintain financial soundness of the Bank.
- The Bank will continue to review the conduct of monetary policy and take necessary measures in order to strengthen the transmission mechanism of monetary easing and to enhance the transparency of monetary policy.