BOJ to unwind emergency funding steps, but maintain low-rate policy

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TOKYO, Oct. 30 Kyodo -
The Bank of Japan said Friday it will start phasing out its emergency funding
steps at the end of this year given a recent improvement in corporate financing
conditions, while vowing to maintain an accommodative monetary policy to
support the economy.
Japan will experience three years of deflation and its economic recovery will
be ''moderate'' until around next autumn, the BOJ said in its economic outlook
report issued the same day.
''It will take some more time for the economy to get back on a full-fledged
growth path,'' BOJ Governor Masaaki Shirakawa said at a press conference after
the central bank's one-day policy meeting. ''We will tenaciously maintain the
current easy monetary policy.''
The BOJ decided at the policy meeting to let its temporary program for the
outright purchase of corporate bonds and commercial paper to expire at the end
of December as scheduled, while leaving its key interest rate unchanged at 0.1
percent as widely expected.
At the same time, the BOJ said it will extend its program of providing banks
with unlimited low-interest loans against eligible collateral for three months
to the end of March.
''Japan's financial environment, with some lingering severity, has been
increasingly showing signs of improvement, particularly in the commercial paper
and corporate bond markets,'' the BOJ said in a statement.
Earlier this year, the BOJ started purchasing such corporate debt from
financial institutions and providing them with unlimited low-interest loans to
help cash-strapped companies. In July, the expiration date of those measures
was extended by three months from September as the BOJ determined that
corporate financing conditions were severe and still needed the support.
In its ''Outlook for Economic Activity and Prices'' report released Friday, the
BOJ said consumer prices, excluding volatile fresh food prices, are likely to
fall 0.4 percent in fiscal 2011 from the previous year for the third
consecutive year of decline, albeit at a gradually slowing pace.
For fiscal 2009 and 2010, the BOJ projects that prices will fall 1.5 percent
and 0.8 percent, respectively.
On the domestic economy, the BOJ forecast that the nation's real gross domestic
product will shrink 3.2 percent in fiscal 2009. GDP is then expected to expand
in the following two years at a pace of 1.2 percent in fiscal 2010 and 2.1
percent in fiscal 2011.
In the report, the bank unveiled its first forecast for economic growth and
prices in fiscal 2011.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said that the
BOJ's decision to end part of the emergency funding steps does not herald an
interest rate hike and that the central bank is likely to maintain its rate at
the current near zero level until early fiscal 2011.
''That means the BOJ will start raising the rate while prices are still
falling,'' Kanno said, adding that the bank is likely to do so to prevent
another ''bubble'' economy.
The decision to keep the BOJ's key rate on hold was decided in a unanimous vote
by the eight-member Policy Board.
On the fate of the unconventional funding steps, Atsushi Mizuno opposed ending
the corporate bond buying program and the temporary loan program at the end of
December and March, respectively.
The BOJ has kept its target rate for unsecured overnight call money at 0.1
percent since December, when it cut the key rate from 0.3 percent.
==Kyodo
2009-10-30 23:39:05