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Fri, Feb 20, 2009 - Page 10 News List

Japan takes new steps to increase credit

AFP , TOKYO

Japan’s central bank yesterday announced new measures to tackle a deepening recession in Asia’s biggest economy as it left its super-low interest rates unchanged for a second month.

The Bank of Japan (BOJ) said it would maintain its key lending rate at 0.1 percent. At the same time it announced plans to buy up to ¥1 trillion (US$10.7 billion) of corporate bonds from commercial banks as part of efforts to fight a credit crunch.

It also extended some of its existing emergency efforts to keep credit flowing to struggling firms, just days after data showed the Japanese economy suffered its worst quarterly contraction since 1974.

The bank painted a gloomy picture of the world’s second-largest economy, which shrank at an annualized pace of 12.7 percent in the last quarter of last year.

“Exports have been decreasing substantially reflecting a slowdown in overseas economies, and domestic demand has become weaker against the background of declining corporate profits and the worsening employment and income situation in the household sector,” the bank said in a statement.

“Economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being,” it said.

The bank has trimmed official borrowing costs twice since October. With little room left to reduce its rock-bottom interest rates further, it is seeking alternative tools to spur lending.

The BOJ said earlier this month that it would buy ¥1 trillion in shares held by commercial banks in an effort to keep credit flowing to cash-strapped companies.

It has also announced plans to spend up to ¥3 trillion to buy commercial paper.

Japanese banks have been less affected by the global credit crunch than many of their US and European peers, but they have lost money because of the falling stock market.

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