BOJ unveils new loan scheme, holds key rate at 0.1%+

TOKYO, June 15 Kyodo -
The Bank of Japan said Tuesday it plans to introduce at the end of August a new
funding measure aimed at prodding banks to boost lending to industries with
growth potential, such as those related to the environment, while deciding to
keep its key interest rate unchanged at a razor-thin 0.1 percent to help ensure
the nation's economic recovery.
Under the new lending program, the BOJ will offer up to 3 trillion yen in loans
to private financial institutions that will fund projects in industries with
growth potential for one year at an interest rate of 0.1 percent a year, the
BOJ said after concluding a two-day policy meeting.
''The fund-provision measure aims to act as a catalyst for financial
institutions in making efforts toward strengthening the foundations for
economic growth,'' the BOJ said in a statement.
Together with the growth strategy the government has been working to compile by
the end of this month, the central bank is hoping its new funding program will
help ensure that the nation's economy achieves a full recovery and defeats
deflation.
The central bank will allow the loans to be rolled over three times, meaning
that banks will be able to borrow money for four years at the maximum at the
BOJ's policy rate.
Financial institutions will have to inform the BOJ of their lending plans to
qualify for the lending facility by the end of March 2012 when applications for
the loans are closed.
''This is an extraordinary step so we cannot keep offering it forever,'' BOJ
Governor Masaaki Shirakawa said at a press conference.
Noting that the most critical challenge for the Japanese economy is to raise
the potential economic growth rate and productivity, the governor said, ''We
hope that companies will strengthen their various operations and services by
taking note of this new step.''
Japan's economy expanded a real 5.0 percent on an annualized basis for the
January-March quarter on the back of a recovery in exports, but sovereign debt
problems in Europe and subsequent falls in the euro against the yen have raised
concerns over adverse effects on the export-oriented economy.
The BOJ said it is necessary to take heed of the potential risks to the global
economy and financial markets posed by fiscal problems in some European
countries.
As for the state of the Japanese economy, the BOJ maintained its assessment,
saying it sees ''further signs of a moderate recovery.''
Under the funding program, the central bank will offer cheap loans to financial
institutions lending to a variety of business areas that it sees as helping to
solidify the foundations of the nation's economy.
The business areas range from the environment and energy to nursing care and
sightseeing, as well as investment projects in other Asian countries.
It is unusual for the BOJ to support lending in specific areas.
Some economists, however, showed doubt over the effectiveness of the BOJ's new
measure, claiming that the size of the offering is too small.
Takahide Kiuchi, chief economist at Nomura Securities Co., said the size
represents less than 1 percent of the total lending balance of Japanese banks
and even if all the 3 trillion yen was redirected to industries with growth
potential under the program, its impact would be ''limited.''
But the step would help banks to raise profit margins, he said, adding, ''This
could effectively be a subsidy to banks.''
The BOJ's policy meeting was the first held since former Finance Minister Naoto
Kan, who has been vocal in calling on the BOJ to make more efforts to defeat
deflation, became Japan's prime minister last week.
Shirakawa said the BOJ intends to hold policy dialogue with the government
headed by Kan, as he did with the previous government of Yukio Hatoyama, and
displayed support for Kan's drive to rein in the nation's massive public debt.
''It's an extremely important issue (for Japan) to win market confidence on
fiscal discipline, and since Greece's fiscal problems triggered a rise in
tensions in European financial markets, I think the view that it is an
important issue is prevailing,'' he said.
The vote to keep the key target rate for unsecured overnight call money at 0.1
percent was unanimously made by the BOJ's eight-member Policy Board. The rate
was last changed in December 2008, when it was lowered from 0.3 percent at the
height of the global financial crisis.
==Kyodo