MNI INSIGHT:BOJ To Mull Lower Rates, Lending Facility, Message

     TOKYO (MNI) - The BOJ is considering sending its strongest message yet that

it will stabilise financial markets and provide ample support to the real

economy, MNI understands.

     Alongside a stronger statement, the BOJ could examine lowering short-term

rates to help lower lending costs to the real economy, moving to target

shorter-dated yields on the curve, perhaps in the 3-to-5 year sector.

     If the BOJ did move to ease further, it will be a boon for borrowers, but a

problem for commercial banks already suffering from low margins and lower rates

will further squeeze profitability.

     Taking a lead from other major central banks, the BOJ is also considering

measures focused on ensuring lending gets to small and medium enterprises that

are facing financial difficulties from the impact of the virus.

     --TARGETTED LENDING

     Officials at the BOJ would hope if it extends loans to commercial banks at

negative rates, the banks would pass those loans on at 0% -- a level in line

with hardship loans the government is considering.

     However, the worry at banks is that corporate borrowers will push for more

of the lower rate levels to be passed on to them, which would be another

pressure on bank profit-levels.

     The BOJ cannot extend loans directly to non-financial institutions and

therefore must consider tools that will increase banks' incentives to extend

loans to smaller firms.

     Another possible tool is for the BOJ to provide double liquidity to

commercial banks at negative interest rate of the scale that banks extend loans,

and the bank allows them to add a half of the fund to the Basic Balance, where

+0.1% is applied - effectively paying them 20bps on funds over and above what

they lend.

     The BOJ will likely consider setting a fixed period for any new lending

facility.

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

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