ARANCA News Report (www.aranca.com) 
London, Thursday, February 19, 2009 :
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Bank of Japan to buy 1 trillion yen in Corporate Bonds to Spur Lending

Bank of Japan (BoJ) announced plans to buy upto 1 trillion yen ($10.7bn) of corporate bonds for the first time, as it attempts to spur lending and ease credit flow to cash-strapped corporates. The central bank also extended its asset-purchase program. The world’s second largest economy is experiencing its worst downturn in 35 years.

The BoJ said it will start purchasing A-rated and higher corporate bond, outright from financial institutions to encourage banks to lend more to businesses. The central bank will continue to buy corporate bonds until the end of September. The bank also announced plans to extend it programme to buy 3 trillion yen in commercial paper and provide unlimited collateral-backed loans to financial institutions till December.

“We implemented these measures to ease concerns companies are having about funding,” Governor Masaaki Shirakawa said. “Unfortunately, we have to assume that conditions for corporate financing will remain very severe.” However, the central bank predicts a rebound in the economy latter half of fiscal 2009.

After a two-day Policy Board meeting that ended on Thursday, the central bank kept its key policy rate unchanged at 0.1 percent, in line with market expectations.

The move by the central bank comes on the back of gloomy economic data released earlier this week. Japan’s economy is reported to have shrunk at an annualized rate of 12.7 per cent in the last three months of 2008. As the exports continue to tumble at their fastest pace on record, the Japanese economy has slowed sharply.

 

 

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