The Bank of Japan will discuss further policy steps to ease a corporate financing squeeze, Governor Masaaki Shirakawa said on Friday, as a newspaper reported the central bank may extend its buying of corporate debt.
The BoJ started buying corporate debt last month to help companies that have been unable to raise cash due to the global squeeze, and the Nikkei business daily reported the Japanese central bank may extend the programme for six months longer than previously planned.
Company earnings have worsened as recession spreads around the world, eroding firms' credit-worthiness and raising concerns that liquidity will remain constrained into the financial year that starts on April 1, the paper said. The move would be welcomed by financial markets, which will take relief from the BoJ efforts to back corporate funding, analysts say.
"I know the central bank is conscious of its balance sheet but it shouldn't set a time limit for such steps in the first place if it wants to ease concerns about corporate funding," said Hirokata Kusaba, senior economist at Mizuho Research Institute. Kusaba said the BoJ needed to take steps such as buying corporate bank loans as Japanese firms depend heavily on such financing, although he realised the central bank may baulk at taking on such untradeable debt.
The BoJ's purchases of commercial paper are slated to end on March 31, with a special lending facility for financial institutions due to expire at the end of April. The lending facility, which also started in January, enables financial institutions to obtain low-interest loans backed by corporate bonds and commercial paper. These market operations have been carried out twice a month.
Shirakawa, speaking to reporters ahead of his departure for a meeting of G7 finance leaders in Rome, said the BoJ policy board would discuss the issue when it meets next week. "The BoJ is taking steps to support the stability of financial markets and smooth functioning of corporate financing, and I think these are very important issues right now," he said.
"We'll discuss what concrete steps would be desirable at the policy-setting meeting next week." Financial markets took heart from a new US government programme to subsidise mortgages, sending Japan's Nikkei stock average up 1 percent and pushing down the yen broadly as regional stock markets rose.
A separate programme to buy corporate bonds is also expected to be finalised at the policy board meeting, the newspaper said, without quoting sources. The policy board is due to meet on Wednesday and Thursday, February 18-19, with no change expected to its very low 0.1 percent interest rates. Some BoJ officials have recently signalled the bank's focus will be on term interest rates - those for lending beyond overnight funds such as for periods of three months.