MNI INSIGHT: BOJ May Up Asset Purchases As Finance Tightens

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will consider increasing its purchases of

commercial paper and corporate bonds as financing for small and large firms

continues to tighten, MNI understands.

     The BOJ has been focusing all its efforts on boosting corporate finance and

stabilising financial markets in order to prevent Japan's economy from falling

into a vicious cycle.

     Despite the measures put in place by the central bank on March 16, both

commercial paper and bond issuance have increased, pushing up the cost of

corporate funding and prompting some firms to postpone bond issuance.

     Relaxing ratings criteria for CP and bonds from the current a-2 and BBB may

be an option, but there is concern at the BOJ that such a move would undermine

the Bank's own financial position.

     Some major companies are making efforts to expand their credit lines at

commercial banks to ensure adequate future funding as uncertainties over the

outlook grow.

     --SMALLER FIRM SUPPORT

     If the BOJ decides to offer greater support to smaller firms, it must

clarify the distinction from the governmental financial entities.

     At present, bodies, including Development Bank of Japan, Japan Finance

Corporation, the Shoko Chukin Bank and Japan Federation of Credit Guarantee

Corporations, are all facilitating finance for smaller firms.

     A prolonged coronavirus outbreak will decimate cash flow and dry up

liquidity for smaller firms -- which in turn will increase the risk that current

lending turns into non-performing loans, worsening banks' credit standing.

     --UPDATED STATEMENT

     The BOJ's updated statement alongside the April 28 will likely incorporate

a new sentence highlighting the concerted effort with the government to combat

the virus, similar to wording adopted back in July 2016.

     When the BOJ decided back then on additional easy policy in July, 2016, it

said the government "is undertaking fiscal and structural policy initiatives,

including a large-scale 'stimulus package,' which is currently being compiled."

     The BOJ added than that it believed its monetary policy measures along with

government initiatives would produce "synergy effects on the economy."

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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