19 Feb 2009, Alexander Campbell, Risk magazine
Next month, the bank will start regular purchases of short-dated corporate bonds with credit ratings of at least A and residual maturities of up to a year. The bank will buy up to ¥1 trillion ($10.8 billion) in corporate bonds until the end of September, limiting purchases to ¥50 billion from any one issuer.
The bank will also step up its lending against corporate bond collateral - starting next week, lending will take place every week rather than twice a month; loans will be for three months rather than one to three months; and the programme will continue until the end of September (it was previously scheduled to end in March). The fixed rate of 0.1% will remain unchanged, the bank said. Other existing support programmes - including outright purchases of commercial paper, and US dollar-denominated lending - have also been extended, and the bank will now lend against government-guaranteed commercial paper.
Japan recently announced a 3.3% fall in GDP in the last quarter of 2008, and the bank's projections are gloomy. While its baseline scenario still predicts a recovery starting in the second half of this year, it stressed the downside risks involved with falling exports and a global recession, and warned that the downturn could last significantly longer. The bank said it would leave its overnight target rate unchanged at 0.1%.
The decision follows the bank's move on January 23 to start buying up commercial paper, which it said was justified by a "significant decline in market functioning of corporate financing instruments". In December 2008, it agreed to accept lower-rated corporate bonds -BBB and above - as collateral for loans.See also: Bank of Japan steps up support for corporate borrowing
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