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Friday, Jan. 23, 2009

BOJ to spend ¥3 trillion on CP, mull buying bonds

Staff writer

The Bank of Japan said Thursday it will purchase up to ¥3 trillion worth of commercial paper from financial institutions, and investigate ways to implement outright purchases of corporate bonds to facilitate corporate financing.

With little room left for a further rate cut, the BOJ said it will maintain its key interest rate at 0.1 percent.

Amid the global economic downturn, the BOJ also lowered its economic growth forecast for the current and following fiscal years and revised its inflation outlook downward.

"The economy is largely deteriorating and there is a high chance that it will continue to worsen for the time being," BOJ Gov. Masaaki Shirakawa said at a news conference.

"Companies now want to secure cash, liquidity," he said. "This time, we made a move toward the fiscal yearend."

Facing pressure to take bold steps to prevent the yen's rise and provide more liquidity to cash-strapped firms, the BOJ in December lowered the unsecured overnight call rate to 0.1 percent from 0.3 percent.

The central bank then decided to purchase CP outright from companies to support their cash flow.

Although the BOJ's move to purchase CP had been expected, some economists said they were surprised at the amount it intends to buy.

"It was a surprise, as the upper amount of outstanding CP (to be purchased) is ¥3 trillion," said Yasunari Ueno, chief market economist at Mizuho Securities, noting, "There were some media reports saying it will be around ¥2 trillion."

The BOJ's latest decision, however, fell within the market's expectations, Ueno said.

The BOJ also revised downward its October forecasts of some key economic indicators for the next three years.

The Policy Board lowered its forecast for real gross domestic product growth for the current fiscal year ending in March from 0.1 percent to minus 1.8 percent.

For fiscal 2009, it also lowered its forecast from 0.6 percent to minus 2 percent. Economic growth is not forecast to return until fiscal 2010, when the economy is predicted to grow by 1.5 percent, it said.

As for the consumer price index, the BOJ also lowered its earlier forecast. The current fiscal year will see 1.2 percent inflation, it said, down from the 1.6 percent estimated in October.

For fiscal 2009, the index will drop to minus 1.1 percent, rather than October's forecast of zero percent, the BOJ said.

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The Japan Times

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