Japan’s central bank yesterday announced new measures aimed at tackling a worsening credit crunch in Asia’s biggest economy, making it easier for commercial banks to borrow money.
The new steps were adopted at an extraordinary monetary policy meeting at the Bank of Japan (BOJ), which left its super-low interest rates unchanged at 0.3 percent in an unanimous decision by the policy board.
The BOJ said it would accept more corporate debt from commercial banks as collateral, offering unlimited cheap credit to try to encourage them to keep lending to companies.
“Financial conditions in Japan have become less accommodative on the whole, as the financial positions of small firms have deteriorated and an increasing number of large firms have faced a worsening in funding conditions in the markets,” the bank said.
The BOJ announced similar measures to help companies in November 1998 after a number of banks collapsed under mountains of bad debts.
Japan slipped deeper into recession in October as factory output tumbled, consumer spending dropped and inflation slowed, according to data out last week.
The bank cut rates for the first time in seven years by 20 basis points to 0.3 percent in October, as part of efforts to calm volatile markets and boost the economy.
BOJ Governor Masaaki Shirakawa has since warned that cutting interest rates too much could prevent money markets from functioning efficiently, dampening speculation about a further reduction in borrowing costs.
Instead, the central bank is looking at alternative measures to keep credit flowing to companies that have been hit hard by the global credit crunch, weak domestic demand and a slump in exports to ailing overseas economies.
Some analysts, however, believe the BOJ will next year cut interest rates again to almost zero as the economy sinks deeper into recession.