MNI INTERVIEW1: Ex-BOJ Offl Warns Fund Injections Aid Zombies

--Ex-BOJ Yamamoto: Japan Has Record Of Not Ending Temporary Measures

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan moves to shore up asset markets, the financial

system and corporate lending may simply be delaying the inevitable failure of

unviable firms and should not become permanent sources of funding, a former BOJ

executive director told MNI, adding that rising corporate defaults could tip

commercial banks into losses if economic recovery is delayed.

     "To put it in extreme terms, the measures are enabling considerably

cash-strapped firms to get liquidity. The vital issue is when (policymakers) can

drop their measures. They should discuss it, but everybody keeps quiet," Kenzo

Yamamoto, now a representative for KYinitiative,said in an interview.

     The government calls policies aimed at facilitating lending temporary and

the central bank has said they will end by March 2021.

     However, Yamamoto noted Japan's track record of not terminating 'temporary'

measures. The SME (small and medium-sized enterprises) Finance Facilitation Act

was adopted in December 2009 and should have been terminated in March 2013 but

continued through March 2019. It has now been resurrected by the Financial

Services Agency in response to the coronavirus shock.

     --RECOVERY NEEDED

     Although the boost to funding has been essential for the survival of many

firms, they need a steady recovery in demand and consumer confidence - something

which may only come with the discovery of a vaccine against the virus, Yamamoto

said, noting that, apart from Japan's manufacturing giants, a significant

proportion of companies do not have healthy cash reserves.

     "Major Japanese firms hold ample cash reserves and they can operate for a

few months without new cash flow," he said, explaining that big companies

learned to stockpile cash following the Lehman crash.

     But smaller companies will start to default on loans if recovery is

delayed. If this pushes credit costs far above 0.2%, many commercial banks

already coping with depressed loan margins will fall into the red, he said.

--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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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