MNI POLICY: BOJ Examining Loan Program Impact; Amend If Needed

--BOJ Concern That Lending Boost May Not Save Troubled Sectors

By Hiroshi Inoue

     TOKYO (MNI) - Despite extending a string of exceptional measures in recent

months to ensure lending gets to companies in dire need of funding to help shore

up employment, there are concerns that the economy is continuing to worsen and

the Bank of Japan is looking closely at whether lending programs are having

their desired effect, MNI understands.

     Bank officials are studying loan data and bank lending surveys to see

whether the central bank needs to boost or amend its current schemes. Under its

current framework, the BOJ can increase the upper limit of its lending facility

from JPY30 trillion as needed without a formal policy-setting meeting.

     At present, the Bank believes that the banking system is sufficiently

capitalized, but if profits dip, their capability to lend will drop.

     --RUNNING DRY

     The BOJ will offer its first lending facility for smaller firms on June 24,

hoping the scheme will ease both credit risk concerns and increase incentives

for banks to lend to smaller firms.

     The hope is this will help companies who will move into the second half of

the year as cash reserves start to run dry after three months of diminished

income, risking a wave of bankruptcies that will inevitably lead to a surge in

bank non-performing loans

     Although the official state of emergency was lifted in late May, the BOJ

still thinks many sectors of the economy will continue to struggle in coming

months, as many people elect to stay home, fearful of a second wave of the

Covid-19 virus, with the hospitality and tourist sector particularly vulnerable.

     --LABOUR DOWNTURN

     An increase in bankruptcies will hit the labour markets, with job losses

and lower wages, leading to a decline in consumer sentiment and further lowered

recovery expectations.

     As bad as the first quarter was in Japan, expectations are that Q2 will be

worse, with a steep GDP decline expected and unemployment to rise from the

current 2.6%. Corporate profits fell sharply in Q1, down 32% to record the

biggest dip since the early days of the financial crisis, and they will likely

slide again in Q2.

     The government's employment adjustment subsidy fund will boost wage subsidy

pot for now, helping prevent the unemployment rate from rising sharply.

--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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