The Bank of Japan unveiled a lending program to help companies in areas affected by the nation’s record earthquake, while voicing concern the disaster may depress economic growth in coming months.
The BOJ unveiled the 1 trillion yen ($12 billion) facility as board members downgraded their economic assessment for the first time since October. The bank held the benchmark overnight rate at a range of zero to 0.1 percent and kept unchanged a credit program and an asset-purchase fund that represent its main policy tools.
Governor Masaaki Shirakawa’s efforts to restore stability to the world’s third-largest economy since the March 11 temblor have focused on pumping record one-day credit into money markets and adding 5 trillion yen to its asset-purchase program. Even together with today’s targeted lending facility, the efforts are less than a tenth of the U.S. Federal Reserve $600 billion quantitative easing program.
“Banks already have enough cash and don’t really need liquidity,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “What Japan needs from the BOJ is monetary easing that’s beyond the ordinary.”
The yen traded at 85.27 per dollar as of 5:10 p.m. in Tokyo. It has weakened more than 5 percent since Group of Seven authorities sold the currency on March 18 to stem its advance. The Nikkei 225 Stock Average rose 0.1 percent to 9,590.93.
Shirakawa ordered his staff to map out details of the quake-aid program by their next policy meeting. The bank said today the one-year loans will be at 0.1 percent interest, matching the upper range of the benchmark rate. To ease funding restraints, bank staff will also draft measures to broaden the range of acceptable collateral for lenders in disaster areas.
‘As Soon as Possible’
“We would like to start implementing loans as soon as possible after our April 28 board meeting,” Shirakawa told reporters in Tokyo today. “We’re now carefully examining how measures we have taken so far will affect the economy.”
Japan’s economy is under “strong downward pressure” after the earthquake damaged production facilities and weakened the financial positions of companies, particularly small enterprises, the central bank said. Pressure will persist “for the time being” before the economy recovers, it said.
Ten of 14 economists surveyed by Bloomberg News predicted the central bank would unveil an emergency lending program today. Eight said the central bank may provide more monetary stimulus at its next gathering this month and expand its asset-buying fund and buy more bonds.
The bank is scheduled to release its semi-annual economic outlook report at the next board meeting and project economic growth and consumer prices through the next fiscal year ending March 2013. Waiting until then to add stimulus will give policy makers the opportunity to examine evidence for hints of the scope of damage from the earthquake and crippled nuclear power plant that has spurred electricity shortages.
By then, board members would have viewed March data for factory output and exports, which were disrupted from the temblor and ensuing tsunami. The unemployment rate, housing starts and consumer prices will also be released April 28. They would have also gathered evidence on how regions are coping with the disaster at a BOJ branch managers meeting on April 11.
“The BOJ may increase its asset-purchase program on April 28, in tandem with a March production data release, though it will remain tough to assess developments with economic indicators alone,” said Naka Matsuzawa, chief strategist at Nomura Securities Co. in Tokyo.
The BOJ injected a record amount of emergency cash into the banking system following the quake and doubled its asset-buying fund to 10 trillion yen on March 14. Funds in the loan program announced today represent about 7 percent of total lending in Iwate, Miyagi and Fukushima prefectures in northern Japan affected by the quake, according to Maoki Matsuno, an analyst at Daiwa Securities Capital Markets Co. in Tokyo.
“Regional banks are facing increased lending needs from small enterprises, who are seeking to boost funds on hand,” Matsuno said. The program “will make it easier for them to lend, helping small enterprises in the area,” he said.
Data reflecting the state of the economy after March 11 point to a slower expansion. Japan’s large manufacturers expect business confidence to slump in June and new car sales fell 37 percent in March, the biggest drop on record for the month. Manufacturing shrank at the fastest pace in nine years, according to a purchasing managers’ index.
Economists are divided over how quickly the Japan’s gross domestic product will resume expanding on the back of demand from reconstruction projects such as rebuilding roads, ports, bridges and thousands of houses.
Economists of BNP Paribas SA and SMBC Nikko Securities Inc. predicted the world’s third-largest economy will shrink for the first and second quarters after contacting at an annualized 1.3 percent in the three months ended in December.
The Organization for Economic Cooperation and Development this week said Japan’s GDP growth may be reduced by as much as 0.6 percentage point in the first quarter and up to 1.4 percentage points in the second in the aftermath of the quake.
Federal Reserve policy makers said on March 15 that economic implications of Japan’s disaster, including those on global supply chains, “were not yet clear” while the incident “had further increased uncertainty about the economic outlook” along with turmoil in the Middle East, minutes of the Fed’s meeting indicate.
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