MNI INSIGHT: BOJ Plots SME Lending To Avoid Economy Meltdown

--BOJ Could Seek Govt Approval To Increase Risk Profile

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is considering ways it can go much further

in boosting financing for companies, as concern grows for the financial health

of Japan's corporate sector, particularly small and medium enterprises, and the

impact on the wider economy and financial system, MNI understands.

     A main concern for the BOJ is that the economy deteriorates sharply,

increasing bankruptcies that quickly transform into non-performing loans for

banks and lead to a drying up of credit provision, impacting the transmission

effects of its monetary policy efforts.

     Financial conditions have worsened markedly in the first few weeks of

April, making it difficult for cash-poor smaller firms to access liquidity,

increasing pressure on the BOJ to strengthening measures to boost lending.

     --NEW TOOLS NEEDED

     The BOJ doesn't currently have tools to directly facilitate smaller firms'

financing but may consider the establishment of a temporary fund for such, as

ensuring funding for the wider economy remains a priority.

     However, if policymakers look to introduce new tools not in the scope the

BOJ Act that increase the risk of losses for the central bank, permission will

be needed from the finance minister or the wider government.

     Speed is of the essence for the BOJ, as the longer the coronavirus outbreak

runs, the greater the hit on cash flow , drying up liquidity for smaller firms.

     --CURRENT THINKING

     The BOJ is already considering increasing purchases of commercial paper and

corporate bonds, while also looking at the conditions and rules applied --

including credit-ratings, percentage of individual bond/CP issue held and

allowed purchase sizes.

     The upper limit on purchases allowed by the BOJ is 25% of the total amount

of CP/bonds of any single issuer.

     To date, the BOJ has been unwilling to expand and ease the required

credit-ratings, concerned it could impact its own financial position and it

could now consider increasing its own reserves for losses on price revisions on

eligible collateral held.

--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

[TOPICS: MMJBJI,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]