MNI POLICY: BOJ Still Mulling Targeted Corporate Funding

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is still seeking ways to encourage

commercial banks to extend lending facilities to companies facing a fiscal

squeeze due to the effects from the coronavirus outbreak.

     The Bank understands it has to inject the necessary liquidity into the

system to help stabilize the financial markets, fully aware that it has limited

ammunition via its interest rate toolbox.

     The yen's surge in recent days, along with a sharp correction in the stock

market has weighed sharply on both corporate and consumer sentiment and will

undermine the recovery, slowing momentum towards price stability.

     The BOJ is still uneasy over cutting the overnight rate further into

negative territory from the current -0.1% to help ease the yen strength, unsure

its action alone will be enough to turn the tide as markets remain volatile.

     They are looking to put in place measures that will enable commercial banks

to benefit from lending to companies facing tighter fundraising, including the

option they can shift some of Policy Rate Balance, where -0.1% is applied, to

the Basic Balance, where +0.1% is applied, if lending is increased to virus-hit

firms.

     If the BOJ extended loans to commercial banks at negative rates, it would

enable those banks to lend to private firms at zero percent, consistent with

loans that the government is considering.

     Bank officials also see market volatility increasing credit costs for

financial institutions at the same time non-performing loans will increase,

worsening the financial system. There are also concerns it will be more

difficult for Japanese banks to raise the necessary dollar liquidity.

     In more orthodox policy options, the Bank can also increase the size of

ETF, commercial paper and straight bond purchases from JPY6 trillion, JPY2.2

trillion and JPY3.2 trillion, respectively.

--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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