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Thursday, July 16, 2009

BOJ extends deadlines on corporate aid

Policy Board keeps interest rate at 0.1%

Staff writer

The Bank of Japan on Wednesday extended its emergency measures to support corporate financing beyond the September deadline to year's end, reflecting its downgraded outlook for the economy.

Among the steps introduced earlier this year by the BOJ was the outright purchase of corporate bonds and commercial paper from financial institutions. It also started offering unlimited loans to lenders with approved collateral at a 0.1 percent rate.

The programs, slated to end on Sept. 30, will now be extended to Dec. 31.

"The economic and financial outlooks are extremely uncertain," BOJ Gov. Masaaki Shirakawa said at a news conference. "If the situation doesn't improve sufficiently and we judge it necessary, we will extend our temporary measures again."

The central bank said it will also extend to March 31 measures to expand the range of corporate debt and asset-backed commercial paper eligible as collateral for loans to financial institutions. The BOJ Policy Board also decided to extend the dollar funds-supplying operations for lenders to Feb. 1 from the current Oct. 30.

At a two-day meeting, the Policy Board unanimously agreed to maintain the key interest rate at 0.1 percent as expected.

Reviewing its economic and price report released in April, the BOJ now expects Japan's economy to shrink 3.4 percent in fiscal 2009, which ends next March, as measured by gross domestic product, instead of the 3.1 percent contraction it projected in April.

For fiscal 2010, the bank also cut its growth projection for the economy from 1.2 percent to 1.0 percent.

Nevertheless, the BOJ upgraded its assessment from the previous month.

"Japan's economic conditions have stopped worsening," the BOJ said in a statement, adding that exports and production are picking up.

The central bank, however, warned that corporate investment is declining sharply due to weak profits and said financial conditions remain difficult.

Some economists praised the latest BOJ decision to continue to support the economy.

"We should interpret (the BOJ's decision) as a message telling us it will continue to ease financing and keep the current ultralow interest rate at least for the time being," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

The central bank's June quarterly "tankan" business survey suggested small enterprises still feel financially precarious and pessimistic about the lending attitude of financial institutions.

Muto said he backed the continuing efforts by the BOJ to support the economy until a recovery has been assured.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc., agreed.

"While the economic situation improves, corporations could be further supported as they will find it easy to finance themselves" with the BOJ's measures, Kumano said.

Information from Kyodo added

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