Crisis leads BOJ to offer help on corporate financing

TOKYO, Dec. 2 Kyodo - The Bank of Japan stepped up its battle against the financial crisis Tuesday by unveiling a set of emergency measures to facilitate corporate financing, including the launch of a new fund-supply operation that will funnel an estimated 3 trillion yen into companies suffering from the credit crunch.
The move came as more companies are facing difficulties raising operating
capital, with banks increasingly cautious about extending fresh loans for fear
of defaults due to the global credit turmoil.
''Japan's financial conditions have become less accommodative,'' BOJ Governor
Masaaki Shirakawa told reporters.
''Cash management by small and micro companies has deteriorated while large
companies have faced difficult conditions for accumulating necessary funds,''
Shirakawa said. ''I think we were able to work out impressive
countermeasures.''
The central bank's Policy Board agreed in an extraordinary session on temporary
policies designed to encourage banks to lend more to companies at a time when
demand for cash is surging in the run-up to the end of the year and fiscal 2008
through next March.
The emergency actions, effective through April 30 next year, include an
expansion in the range of corporate debt that the BOJ will accept as eligible
collateral when lending to financial institutions.
The BOJ will accept BBB-rated corporate bonds and loans on deeds starting from
Dec. 9, easing the current conditions for eligible collateral, which require A
or higher credit ratings.
The central bank said it will also implement in January a new fund-supply
operation collateralized by corporate debt. It will provide an unlimited amount
of funds to financial institutions against the value of eligible collateral at
the BOJ's key policy interest rate -- currently 0.3 percent -- so that firms
can make it through to the fiscal year-end.
Shirakawa said the new operation is expected to encourage banks and other
institutions to lend an additional 3 trillion yen to companies suffering from
tighter credit conditions.
The BOJ said it will decide on the details of the operation at its next policy
meeting scheduled Dec. 18-19.
Analysts were pessimistic over the set of policies, however, saying it is
difficult to believe the BOJ could ensure the funds it is to lend to banks
would smoothly go into companies' hands.
''We should not expect a great result,'' said Hiromichi Shirakawa, chief
economist at Credit Suisse in Japan.
He said that what financial institutions need now is to strengthen their
capital and limit their exposures to credit risks, and that the BOJ's latest
methods ''will not solve either of the problems.''
Tuesday's policy meeting came after Shirakawa told his staff last month to
study every possible measure that the bank could take to ensure smooth
corporate finance.
The Policy Board also left the BOJ's key short-term interest rate unchanged at
0.3 percent, with Shirakawa reiterating that the rate remains at an extremely
low level and suggesting the bank will not seek additional rate cuts after it
lowered the rate from 0.5 percent in October.
Given excessively eased credit conditions, ''there is a possibility that
various problems could occur in terms of securing a smooth functioning of
financial markets,'' the governor said.
==Kyodo