The Bank of Japan board members predicted that the Japanese economy is likely to continue to deteriorate through the end of 2009, minutes from the April 6 and 7 monetary policy meeting revealed on Friday.
Some of the board members said that additional steps may be required to assist corporate financing, and that the purchase of corporate bonds was acting as a safety net for the near term - although they didn't want the bank to get overly involved in the process.
Financial conditions had remained tight, the minutes said. The overnight call rate had been at an extremely low level, but the stimulative effects from this had become increasingly limited given the significant deterioration in economic activity. Firms' funding costs had declined compared to their levels at the end of 2008, following the reductions in the policy interest rate and improvements in issuance conditions in the CP market. The amount outstanding of CP and corporate bonds issued had been increasing since a while ago, and that of bank lending, especially to large firms, had continued to increase rapidly.
At the meeting, the bank unanimously retained its key interest rate at 0.1 percent and decided to expand the range of eligible collateral for its provision of credit to facilitate money market operations. The BoJ's decision to expand the range of eligible collateral was made with an intention to ensure financial market stability. The central bank said it will accept loans on deeds to municipal governments as eligible collateral.
The central bank resumed its purchase of stocks held by banks and is examining the specifics of providing subordinated loans to banks. In the previous month, the central bank raised its monthly government bond purchases.
Members concurred that financial conditions in Japan had remained tight as whole despite improved issuing conditions for CP and corporate bonds, the minutes said. One member said that although the pace of the weakening of firms' financial positions, which had been rapid until recently, seemed to have moderated, firms had remained highly cautious about future availability of funds because of worsening business performance and anxiety about the future environment for corporate financing.
The members added that global financial markets remain unstable, and that the housing crisis in the United States has not yet been resolved.
Members shared the view that overseas economic conditions had been deteriorating as a whole, the minutes said. Many members said that signs of a slowing of the pace of deterioration had been seen in some economies: for example, the effects of expansion of fiscal spending starting to manifest themselves, and production leveling out with the progress in inventory adjustments. Members nevertheless agreed that there was a high degree of uncertainty regarding the outlook for the global economy.
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