BOJ upgrades economic assessment, unveils new lending scheme outline+

TOKYO, May 21 Kyodo -
The Bank of Japan upgraded its assessment of the Japanese economy Friday amid
signs that the nation is moving toward a self-sustaining recovery, but noted
the need to take heed of the potential risks to the global economy posed by the
eurozone's fiscal problems.
To ensure that Japan's economy recovers and exits deflation, the BOJ's Policy
Board also unveiled the same day an outline of a new measure aimed at
encouraging financial institutions to boost lending in growth areas and decided
to maintain its key interest rate at 0.1 percent.
''Japan's economy is starting to recover moderately, induced by improvement in
overseas economic conditions,'' the BOJ said in a statement following the
two-day policy meeting, changing its assessment from what was described in
April as ''picking up.''
It was the first time since June 2006 that the central bank included the word
''recover'' in its economic assessment. The move came a day after the
government said Japan's economy grew an annualized real 4.9 percent in the
January-March quarter for the fourth consecutive quarter of expansion.
''The self-sustaining recovery is not yet sufficient, but we are seeing a step
forward in that direction,'' BOJ Governor Masaaki Shirakawa told a press
conference after the meeting, underscoring the central bank's projection that
Japan's economy is likely to remain on a recovery track.
But Shirakawa also said that financial markets in Europe remain unstable and
''full attention should be paid to the downside risks'' that could be posed to
the global economy if tension increases during some European countries' fiscal
reform process.
Still, the governor said that he expects the impact on the Japanese economy
from growing uncertainties over the European economy to remain ''limited'' for
the moment, with emerging and resource-rich countries likely to continue
leading the global economic recovery.
In the face of global financial market upheaval, the BOJ said Friday it will
inject 1 trillion yen of liquidity into financial institutions. The last time
such emergency operations were conducted was May 10.
The offer, however, attracted bids amounting to only 609.7 billion yen.
As for the new lending measure, which Shirakawa ordered his staff to consider
at a policy meeting on April 30, the details remain undecided, including the
total amount of loans.
But the temporary measure, which could be launched around summer, is expected
to make it easier for banks to provide loans to businesses in growing areas,
such as the environment and energy.
According to the outline, the central bank would extend loans to private-sector
banks basically for one year at an annual interest rate of around 0.1 percent,
the same as the BOJ's key policy rate.
The loans could be rolled over, enabling the fund supply to last for more than
a year.
To receive such loans, financial institutions would be required to submit what
the BOJ calls a ''plan for strengthening the foundations for economic growth.''
''I hope this would serve as a pump-priming measure toward reinforcing Japan's
foundation for economic growth,'' Shirakawa said, while emphasizing that the
BOJ will respect the independent efforts of commercial banks and ensure
consistency with its monetary policy.
''We are thinking about designing a mechanism that will enable us to support a
wide variety of lending and investment,'' he said.
But the new measure may not necessarily conform with the demands of commercial
banks. Many banks have stressed the need for loans that would be extended for a
long period, such as 10 years, or the need to support investments in companies
that may not succeed.
Pundits speculate that by crafting the new measure, the BOJ may be hoping to
fend off political pressure for the central bank to implement further monetary
easing steps to fight deflation.
The BOJ has maintained its key target rate for unsecured overnight call money
at 0.1 percent since December 2008.
==Kyodo
2010-05-21 23:41:12


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