Shirakawa Signals Bank of Japan Is Likely to End Credit Steps
Bank of Japan Governor Masaaki Shirakawa said companies are finding it easier to get funding, signaling the central bank will probably end its credit-easing programs this year.
“The environment for corporate debt issuance is in good shape, except low-rated debt,” Shirakawa said at a news conference after his policy board met in Tokyo today. “The need for policy to support the market is receding.”
The central bank held off making a decision to end its programs of purchasing corporate debt at the meeting, contrary to analysts’ expectations. Economists said policy makers avoided a judgment today because government ministers have expressed concern that small businesses are still struggling to borrow as the economy emerges from its worst postwar recession.
“Governor Shirakawa wants to end the purchasing programs,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo. “I don’t think you can call it pressure,” though “there was a lot of influence” on the government’s part, he said.
The eight policy board members also voted to keep the key interest rate at 0.1 percent. They became more optimistic about the economy, saying it has “started to pick up.”
The yen traded at 89.12 per dollar at 6:15 p.m. in Tokyo from 89.03 before the announcement. The currency reached an eight-month high of 88.01 on Oct. 7, eroding exporters’ repatriated earnings and making their products less competitive. Ten-year government bond yields were unchanged at 1.295 percent.
‘More Severe’
Finance Minister Hirohisa Fujii said after the decision that the economic conditions are “more severe” than the Bank of Japan’s assessment suggests. Last week he said the bank’s policies should complement the government’s goals and he’s confident the board won’t do anything to undermine a recovery.
Since lowering the key rate in December, the bank started buying commercial paper and corporate bonds from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the three plans to Dec. 31 when it met in July.
The governor said this month that the need for the corporate debt buying had diminished because companies have regained access to private financing and credit markets have stabilized. The remarks sparked speculation the bank would make a decision today to let the measures expire at the year’s end.
Decide Together
When asked why the central bank refrained, Shirakawa signaled that it would be better for the policy board to decide the fate of all of its credit-easing measures together.
“There was a concern that our intention might not be delivered correctly if we made a decision about the commercial paper and corporate bond purchasing programs alone,” he said. “We have taken various temporary steps and today we concluded that it’s appropriate to assess their effect and need as comprehensively as possible and decide how to handle them at the appropriate time.”
Shirakawa stressed that any end to the credit programs wouldn’t mean the central bank is getting ready to halt its “very low” interest-rate policy. The board will probably hold rates near zero at least through the end of 2010, 16 of 17 economists said last week.
Central banks around the world are moving to pare back unprecedented measures to unfreeze credit.
The Federal Reserve last month said it would shrink programs that auction loans to banks and Treasuries to bond dealers. Australia’s central bank last week raised interest rates, becoming the first country in the Group of 20 nations to boost borrowing costs since the start of the financial crisis.
Raised Evaluation
The Bank of Japan raised its evaluation of the economy for a second month, citing improvements in corporate sentiment. “The decline in business fixed investment, which mainly reflects weak corporate profits, has been moderating,” it said.
“There’s no need for the bank to hurry; they’ll have two more opportunities” to decide to let the credit programs expire, said Susumu Kato, chief economist at Calyon Securities in Tokyo. “Funding conditions for large companies are getting better but for smaller firms they remain severe.”
The next two policy meetings are on Oct. 30 and Nov. 19-20. Kato said the central bank will let the bond-purchasing programs expire while extending the unlimited lending facility, which banks are tapping more.
The central bank lent 7.3 trillion yen ($82 billion) under the facility as of Aug. 31. In contrast, it had 100 billion yen of commercial paper on its balance sheet, about 3 percent of the amount it’s allowed itself to hold.
Small Businesses
Government officials last week called on policy makers to consider that smaller companies still have difficulty raising cash. Shirakawa said today that the central bank is also aware that funding for smaller firms remains “severe.”
Financial Services Minister Shizuka Kamei plans to submit a bill to parliament giving small companies a moratorium on loan repayments to banks.
“The Bank of Japan has laid the groundwork for ending its purchases of commercial paper and corporate bonds, which are being little used, but today’s decision may give the impression that it’s mindful of the government’s view,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.
Filed under: business by Wolf