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173927
Thu, 04/07/2011 - 20:51
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BOJ to extend 1 tril. yen of cheap loans to support quake-hit economy+
TOKYO, April 8 Kyodo -
The Bank of Japan on Thursday stepped up its battle to curb the negative economic impact from the March 11 earthquake and tsunami, saying it plans to offer 1 trillion yen ($11.7 billion) in cheap loans to encourage financial institutions in affected areas to play major roles in reconstruction work.
The move, widely expected by market players, came as the central bank's Policy Board ended its two-day meeting, in which the policymakers also agreed to keep the bank's key short-term interest rate at around zero to 0.1 percent and maintain its asset purchase fund at 10 trillion yen after it was raised from 5 trillion yen last month to support fundraising by firms.
''In the areas struck by the disaster, it is uncertain whether banks will be able to collect (sufficient) deposits while demand for funds will likely increase,'' BOJ Governor Masaaki Shirakawa told a press conference after the meeting. ''The BOJ wants to fully respond from an early stage.''
The bank has injected a record amount of liquidity into the country's banking system since the quake hit northeastern Japan, ensuring financial institutions have enough money to survive any disruption.
While denying any immediate danger of local lenders running out of funds, Shirakawa underlined the program will contribute to a ''feeling of safety'' among those institutions. The BOJ is also considering easing conditions for eligible collateral that it accepts in its routine fund-supplying operations.
The governor has instructed BOJ officials to examine the specifics of the emergency steps and report at the next policy meeting scheduled on April 28, at which the board will agree on the bank's semiannual economic growth and inflation forecasts. Shirakawa said he wants to launch the loan program as early as May.
The BOJ downgraded its basic assessment of current economic conditions. Its statement said, ''Japan's economy is under strong downward pressure, mainly on the production side'' due to the disaster, which has crippled manufacturing and caused power supply shortages as a result of the crisis at the Fukushima Daiichi nuclear power plant.
But it also said the economy, under the BOJ's baseline scenario, could ''return to a moderate recovery path, as supply-side constraints are mitigated and production regains traction.''
Shirakawa said exports supported by global economic recovery as well as potentially strong domestic demand due to rebuilding work would reinforce the optimistic view.
The 1 trillion yen loan program for lenders in the quake-hit Tohoku region is being designed to offer one-year funds at an interest rate of 0.1 percent against pooled collateral. The program is twice as large as the 500 billion yen scheme introduced in the aftermath of the 1995 Great Hanshin Earthquake, which devastated Kobe and surrounding areas.
The recipients of the loans will likely be required to channel the money to local firms struggling to secure operating funds, including for the payment of wages or repaying debt, in the wake of the earthquake.
Shirakawa said the BOJ was not yet able to calculate the economic impact of the quake. ''Demand for funds would change'' as the gravity of the damage is revealed, the governor said, indicating the BOJ could increase the size of the loan program when necessary.
The BOJ's move was widely expected by economists.
''The BOJ decided to do what it should,'' said Kyohei Morita, chief economist at Barclays Capital Japan Ltd. But he also said it is more important to make sure the funds to be extended by the BOJ would not turn into bad loans.
''It's not quantity but quality that matters. We should closely watch whether the loans will continue to perform well,'' Morita said, adding that the government also has to draw up policies to help boost the real economy by supporting companies and households.
The Bank of Japan on Thursday stepped up its battle to curb the negative economic impact from the March 11 earthquake and tsunami, saying it plans to offer 1 trillion yen ($11.7 billion) in cheap loans to encourage financial institutions in affected areas to play major roles in reconstruction work.
The move, widely expected by market players, came as the central bank's Policy Board ended its two-day meeting, in which the policymakers also agreed to keep the bank's key short-term interest rate at around zero to 0.1 percent and maintain its asset purchase fund at 10 trillion yen after it was raised from 5 trillion yen last month to support fundraising by firms.
''In the areas struck by the disaster, it is uncertain whether banks will be able to collect (sufficient) deposits while demand for funds will likely increase,'' BOJ Governor Masaaki Shirakawa told a press conference after the meeting. ''The BOJ wants to fully respond from an early stage.''
The bank has injected a record amount of liquidity into the country's banking system since the quake hit northeastern Japan, ensuring financial institutions have enough money to survive any disruption.
While denying any immediate danger of local lenders running out of funds, Shirakawa underlined the program will contribute to a ''feeling of safety'' among those institutions. The BOJ is also considering easing conditions for eligible collateral that it accepts in its routine fund-supplying operations.
The governor has instructed BOJ officials to examine the specifics of the emergency steps and report at the next policy meeting scheduled on April 28, at which the board will agree on the bank's semiannual economic growth and inflation forecasts. Shirakawa said he wants to launch the loan program as early as May.
The BOJ downgraded its basic assessment of current economic conditions. Its statement said, ''Japan's economy is under strong downward pressure, mainly on the production side'' due to the disaster, which has crippled manufacturing and caused power supply shortages as a result of the crisis at the Fukushima Daiichi nuclear power plant.
But it also said the economy, under the BOJ's baseline scenario, could ''return to a moderate recovery path, as supply-side constraints are mitigated and production regains traction.''
Shirakawa said exports supported by global economic recovery as well as potentially strong domestic demand due to rebuilding work would reinforce the optimistic view.
The 1 trillion yen loan program for lenders in the quake-hit Tohoku region is being designed to offer one-year funds at an interest rate of 0.1 percent against pooled collateral. The program is twice as large as the 500 billion yen scheme introduced in the aftermath of the 1995 Great Hanshin Earthquake, which devastated Kobe and surrounding areas.
The recipients of the loans will likely be required to channel the money to local firms struggling to secure operating funds, including for the payment of wages or repaying debt, in the wake of the earthquake.
Shirakawa said the BOJ was not yet able to calculate the economic impact of the quake. ''Demand for funds would change'' as the gravity of the damage is revealed, the governor said, indicating the BOJ could increase the size of the loan program when necessary.
The BOJ's move was widely expected by economists.
''The BOJ decided to do what it should,'' said Kyohei Morita, chief economist at Barclays Capital Japan Ltd. But he also said it is more important to make sure the funds to be extended by the BOJ would not turn into bad loans.
''It's not quantity but quality that matters. We should closely watch whether the loans will continue to perform well,'' Morita said, adding that the government also has to draw up policies to help boost the real economy by supporting companies and households.
