Governor Masaaki Shirakawa and his policy board today decided to accept municipal and central government bonds that are sold directly to investors to ease credit, the central bank said in a statement today in Tokyo. The board held the overnight lending rate at 0.1 percent by a unanimous vote.
Today’s move would free up funds at regional banks, who hold the securities and are the main lenders to small and medium-sized enterprises. Companies in the world’s second- largest economy say access to funds is the tightest in a decade, the central bank’s quarterly Tankan survey showed last week.
Smaller banks including Sapporo Hokuyo Holdings Inc. have asked the government for capital amid the deepening economic slump. The central bank said any further credit tightening may deepen a recession set to be the most severe since 1945.
The Bank of Japan lowered its key rate to 0.1 percent in December and has since been buying commercial paper and corporate bonds and increasing purchases of government bonds.
Borrowing costs have fallen since the central bank announced its asset-purchase program in December.
Prime Minister Taro Aso yesterday ordered his largest stimulus package since taking office in September. Finance Minister Kaoru Yosano said today that paying for the spending, which is likely to exceed 10 trillion yen, will be a major task” because of the government’s debt burden.
The central bank may step up its government debt purchases in coming months to help the government pay for stimulus initiatives, said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. The bank in March increased its monthly purchases to 1.8 trillion yen from 1.4 trillion yen.