BOJ to buy 3 tril. yen worth corporate debt, eyes taking more risks+

TOKYO, Jan. 22 Kyodo -
The Bank of Japan said Thursday it will purchase outright a total of up to 3
trillion yen (around $33 billion) in short-term debt issued by companies and
study further measures to facilitate their finance amid the global credit
turmoil, including the purchase of longer-term corporate bonds.
After its two-day policy meeting, the central bank also held its key interest
rate steady at 0.1 percent while sharply cutting its estimates for the
country's economic growth, saying the economy is expected to suffer negative
growth in the current 2008 fiscal year through March and 2009.
The BOJ will purchase commercial paper as well as asset-backed commercial paper
from financial institutions in a temporary measure effectively through March.
It is planning to conduct 10 auctions with the first of them scheduled for Jan.
30 and will buy CP and ABCP that match requirements, including having an A-1
rating for acceptance as collateral by the BOJ as well as residual maturities
of up to three months.
Bank of Japan Governor Masaaki Shirakawa told reporters that the bank aims to
help revive the impaired functions of the corporate debt market amid the global
financial turmoil.
''The functioning of the CP market has been deteriorating'' since the failure
of U.S. securities firm Lehman Brothers Holdings Inc. with large companies
worried about raising funds, he said. It is ''important for the BOJ to support
the recovery of CP market functions.''
The BOJ hopes that through what it describes as ''an exceptional measure for a
central bank,'' it will be able to offer sufficient funds to commercial banks
and other financial institutions to encourage them to lend more to companies,
especially smaller businesses, which are facing difficulties in raising capital
in financial markets with the end of fiscal 2008 approaching.
The move ''is likely to help smooth fundraising ahead of the fiscal year-end,''
said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute.
''As the economy has been deteriorating, companies are required to have a
certain amount of money first if they are to borrow additional capital from
banks,'' he said, adding that the BOJ's latest action is meaningful in terms of
offering ''insurance'' to even financially distressed companies.
Shirakawa said earlier that the BOJ is cautious about taking on credit risk by
accepting corporate debt because it could suffer losses if debtors go bankrupt.
Currently, the BOJ only purchases commercial paper from lenders on condition
that they buy it back later.
On Thursday, the central bank suggested it may take one step further into
uncharted waters, revealing that Shirakawa has instructed BOJ officials to
study the feasibility of the bank purchasing outright corporate bonds with a
residual maturity of up to one year.
Corporate bonds have longer maturities than CP and therefore could pose bigger
risks to the central bank's balance sheet.
During the meeting, the BOJ Policy Board downgraded its estimates for Japan's
growth and is now expecting the world's second-largest economy to contract 1.8
percent in fiscal 2008 from a year earlier, against an earlier forecast of 0.1
percent growth.
In reviewing the bank's biannual Outlook for Economic Activity and Prices
report released in October, the decision-making body also revised downward its
projection for real gross domestic product growth in fiscal 2009 to a
contraction of 2.0 percent from an expansion of 0.6 percent.
For fiscal 2010, it expects the economy to expand 1.5 percent, down from an
earlier estimate of 1.7 percent growth.
Japan's economic conditions ''have been deteriorating significantly and are
likely to continue deteriorating for the time being,'' the bank said in its
statement.
==Kyodo
2009-01-22 20:44:30