Japan’s central bank kept its benchmark interest rate steady yesterday but introduced new steps to spur lending and ease the strains of an increasingly painful recession.
The Bank of Japan’s (BOJ) eight-member policy board voted unanimously to leave the key overnight call rate target unchanged at 0.1 percent, as widely expected.
With interest rates close to zero, the central bank has little room to tweak regular monetary policy and has instead focused on measures to boost corporate financing, which has shriveled amid the global credit crisis.
The central bank already buys commercial paper and corporate bonds to help shore up banks’ balance sheets, but it acknowledged that “financial conditions have remained tight on the whole.”
In its latest move, the BOJ expanded the range of collateral it accepts in an effort to funnel more funds to commercial banks and subsequently, to companies seeking loans. The bank said it now welcomes “loans on deeds to municipal governments as eligible collateral.”
Japan’s interest rates are among the lowest of major economies.
The US Federal Reserve’s targeted range hovers between zero and 0.25 percent, while the European Central Bank last week trimmed its benchmark rate to 1.25 percent.
The BOJ said it expected the Japanese economy to start recovering toward the end of this fiscal year, “with price declines abating as global financial markets regain stability and overseas economies move out of their deceleration phase.”
Separately, the Bank of Japan, the European Central Bank, the Bank of England and the Swiss National Bank said on Monday they would enter into swap arrangements to provide foreign exchange liquidity to the Federal Reserve if needed.
Under currency swap arrangements the Fed provides dollars in exchange for reserves of the other nations’ currencies. The Fed has entered into or expanded 14 such agreements since the credit crisis intensified last year, including with the four central banks in Monday’s announcement.