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Bank of Japan injects fresh funds to augment liquidity
The Bank of Japan (BOJ) unveiled 3 trillion yen (Dh117.5 billion) in new measures yesterday to ease an acute squeeze in corporate funding from the global financial crisis in the lead-up to the end of the year.
- Reuters
- Published: 23:25 December 2, 2008
Tokyo : The Bank of Japan (BOJ) unveiled 3 trillion yen (Dh117.5 billion) in new measures yesterday to ease an acute squeeze in corporate funding from the global financial crisis in the lead-up to the end of the year.
The central bank, which kept rates steady at 0.30 per cent at the emergency meeting, where it approved the new measures, said it would accept a wider range of corporate debt as eligible collateral and launch a new scheme to make it easier for banks to make loans available to companies.
"These measures alone cannot determine the shape of the economy, but they will have an effect in improving corporate finance, which has been worsening," BOJ Governor Masaaki Shirakawa told reporters.
"The severity of financing conditions for small to mid-sized firms is higher than that of big companies. But financing at big companies is becoming more severe as conditions for funding via markets with corporate bonds and commercial paper are deteriorating."
Japanese firms have been caught by both falling demand for their goods, as Europe and the US slide into recession and growth slows in Asia, and a funding squeeze as banks and investors shun risk and hoard cash.
"The BOJ wanted to do something to ease credit strains without cutting rates, so this was the obvious answer," said Koichi Haji, chief economist at NLI Research Institute.
"But if global financial conditions deteriorate further, the bank may have to eventually cut rates to zero possibly early next year."
Under pressure
The Bank of Japan has come under pressure from the money markets to take more aggressive funding steps as credit strains have driven up corporate borrowing costs at the fastest pace since Japan's financial crisis a decade ago.
Growing fear of a global recession has rocked financial markets around the world with Japan's Nikkei stock average sliding 6 per cent on Tuesday after a slide on Wall Street on Monday.
Euroyen futures extended their gains, rising 5.5 basis points (bps) to 99.280 from 99.240 before the BOJ's announcement.
The BOJ's moves came after a poll showed manufacturers' confidence falling at its sharpest on record, adding gloom to an economy already in recession and fuelling debate about further rate cuts.
Shirakawa again played down any plans to cut interest rates, stressing he had little room to move.
"With regard to the possibility of a further cut in interest rates, we've said we should be aware that very low interest rates could harm the functioning of money markets," he said.
The BOJ will launch a new scheme in January under which it will lend unlimited funds to financial institutions at the over-night call rate against corporate debt as collateral.
The BOJ, which until now has only accepted corporate debt rated single-A or higher as collateral for its fund operations, also said it would start taking on triple-B rated bonds from December 9, which could increase corporate bonds held as collateral at the BOJ by around 2 trillion yen.
With that, the new measures brought to $59 billion (Dh216.7 billion) the amount the BOJ could commit to such funding programmes.
More needed
While economists generally welcomed the decision, some said the BOJ could be forced to do more as Japan's economic downturn looks set to deepen.
"Technically, the new lending facility should be taken as a back-up tool, as this instrument itself is not capable of canalising funds directly to non-financial firms but can relieve the burden of balance sheet problems at banks only temporarily," said Yoshihiro Nozoe, senior economist at Okasan Securities.
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