Japan's $32bn push for corporate funding

The Bank of Japan (BoJ) unveiled ¥3 trillion ($32 billion) in new measures yesterday to ease an acute squeeze in corporate funding from the global financial crisis in the lead up to the end of the year.

The central bank, which kept rates steady at 0.30 per cent at the emergency meeting where it approved the new measures, said it would accept a wider range of corporate debt as eligible collateral and launch a new scheme to make it easier for banks to make loans to firms.

"These measures alone cannot determine the shape of the economy but they will have an effect in improving corporate finance, which has been worsening," BoJ Governor Masaaki Shirakawa told reporters.

"The severity of financing conditions for small to mid-sized firms is higher than that of big companies. But financing at big companies is becoming more severe as conditions for funding via markets with corporate bonds and commercial paper are deteriorating."

Japanese companies have been caught by both falling demand for their goods, as Europe and the United States slide into recession and growth slows in Asia, and a funding squeeze as banks and investors shun risk and hoard cash.

"The BoJ wanted to do something to ease credit strains without cutting rates, so this was the obvious answer," said Koichi Haji, chief economist at NLI Research Institute.

"But if global financial conditions deteriorate further, the bank may have to eventually cut rates to zero possibly early next year."

Shirakawa again played down any plans to cut interest rates, stressing he had little room to move.

"With regard to the possibility of a further cut in interest rates, we've said we should be aware that very low interest rates could harm the functioning of money markets," he said.

The BoJ will launch a new scheme in January under which it will lend unlimited funds to financial institutions at the governight call rate against corporate debt as collateral.The central bank, which until now has only accepted corporate debt rated single-A or higher as collateral for its fund operations, also said it would start taking on triple-B rated bonds from December 9, which could increase corporate bonds held as collateral at the BoJ by around ¥2trn.

With that, the new measures brought to ¥5.5trn ($59bn) the amount the central bank could commit to such funding programmes.

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