BOJ Extends Credit Policies

The Bank of Japan extended its emergency-credit programs until the end of the year and cut its economic forecasts as companies struggle to borrow amid the country’s worst postwar recession.

Financial conditions are improving but companies are still unconfident about the outlook for borrowing,” Governor Masaaki Shirakawa told reporters after today’s decision. The central bank said the economy will shrink a record 3.4 percent this fiscal year, more than the 3.1 percent predicted in April.

Extending the programs of buying corporate debt from banks and providing them with unlimited loans underscores the central bank’s concern that an economic rebound may be short-lived. Political turbulence ahead of Aug. 30 elections puts a bigger onus on the board to bolster the economy, said Hiroaki Muto.

The policy board also decided to keep the benchmark overnight lending rate at 0.1 percent.

The bank began purchasing commercial paper and corporate bonds this year after lowering the key rate to 0.1 percent in December. It had 473 billion yen ($5.1 billion) of the securities on its balance sheet as of July 10. Policy makers also offered unlimited three-month loans to commercial banks at 0.1 percent in exchange for approved collateral. The bank extended the three programs to Dec. 31 from Sept. 30.

Japan’s central bank has more leeway to keep its measures in place because they’re smaller in scale and there is little risk of inflation taking hold, said Sumitomo Mitsui’s Muto.

The central bank ended an earlier quantitative easing policy in March 2006, during Japan’s longest postwar expansion.

The economy probably grew for the first time in more than a year last quarter, expanding at an annual 2.4 percent pace after plunging a record 14.2 percent in the first three months, according to economists surveyed by Bloomberg News.

The revival may not be sustained as falling profits prompt businesses to trim investment and jobs and banks remain reluctant to lend to companies, the central bank’s Tankan confidence survey showed this month. Bank lending grew at the slowest pace in eight months in June.

The bank will also continue to pay interest on reserves until Jan. 15. The program, which currently pays 0.1 percent on cash parked at the central bank, was set to expire on Oct. 15.

BOJ Extends Credit Policies, Bloomberg
7/15/2009 9:27:14 AM