BOJ takes fresh fund-supplying step, hints at cut in growth estimate+

TOKYO, April 7 Kyodo -
The Bank of Japan said Tuesday it will start accepting a wider range of
collateral for supplying funds to financial institutions to encourage them to
lend more to companies, while BOJ Governor Masaaki Shirakawa warned of a
further deterioration in the Japanese economy.

The central bank's eight-member Policy Board voted unanimously to keep the
target rate for unsecured overnight call money on hold, leaving it unchanged
for the fourth straight month after cutting it in December from 0.3 percent to
0.1 percent.
Citing a sharp decline in exports, lower corporate profits, weaker business
confidence and slowing consumption, Shirakawa told a news conference after a
two-day policy meeting, ''It is highly likely that our country's economy is
undershooting our midterm review in January.''
''The latest Tankan and other economic data underline such a severe view,''
Shirakawa said as the BOJ's Tankan quarterly survey released last week showed
the worst-ever reading of major manufacturers' business confidence in the three
months through March.
His comment suggests the BOJ could cut its economic projection for the current
fiscal year through next March when the Policy Board releases a biannual
economic outlook report on April 30.
The BOJ said in its assessment released in January that Japan's real gross
domestic product would shrink 2 percent in the year through March 2010, a
record fast pace of contraction after World War II.
To combat the deteriorating economy, the BOJ said it will start accepting a
wider range of collateral such as privately placed municipal bonds for
supplying funds to financial institutions.
The new steps are aimed at encouraging financial institutions to lend more to
companies as corporate fund-raising remains difficult amid the global financial
turmoil.
Privately placed municipal bonds are those issued by local governments to
certain regional lenders. By newly accepting such bonds as collateral, the
central bank intends to boost its fund supply to local banks so they can lend
more to businesses in their communities.
Currently, the BOJ effectively accepts only publicly placed municipal bonds as
collateral among types of municipal bonds.
''It is a step to add one tool for financial institutions to raise funds and
demonstrates the BOJ's recognition that it has to do something,'' said Hideo
Kumano, chief economist at Dai-ichi Life Research Institute. ''But the effects
of credit easing by this step are unlikely to be huge.''
The BOJ will also start accepting a wider range of loan claims to the central
government from financial institutions as collateral when supplying funds to
them.
''Economic conditions have deteriorated significantly'' and they are ''likely
to continue deteriorating for the time being,'' the BOJ warned in a statement,
maintaining the same wording for describing the Japanese economy used in its
previous policymaking meeting last month.
The central bank said that the pace of decline in exports and production is
expected to moderate as inventory adjustments progress both at home and abroad,
but that a further slowdown in domestic private demand is expected to keep
pressuring the nation's economy.
In order to fight the global financial crisis, the BOJ has introduced a series
of special measures, including the outright purchase of commercial paper, or
short-term debt issued by companies, and corporate bonds from financial
institutions.
While there is little room for adjusting conventional monetary policy with its
key interest rate at a rock-bottom 0.1 percent, the BOJ is aiming to support
the sharply deteriorating Japanese economy with the new steps.
==Kyodo