The board members of the Bank of Japan suggested that the Japanese economy may begin to recover from the current recession in the second half of this year at the earliest, minutes from the February 18 and 19 monetary policy meeting revealed on Tuesday.

The members also said that they may need to cut their view of Japan's long-term growth - especially since there was more demand than expected for BoJ funds. The board also said that an exit strategy was needed for the series of economic stimulus measures.

The Bank will continue to carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as risk factors, and to exert its utmost efforts as a central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability, the minutes said.

At the meeting, the board voted unanimously to keep the overnight call rate unchanged at 0.10 percent. The bank cut rates in December by 20 basis points to the current level - marking the first easing October 31, when the bank lowered rates by 20 basis points from 0.50 percent. That rate cut was the bank's first in seven years, and it snapped a strong of 22 consecutive meetings of keeping the rates on hold. The BoJ had kept rates unchanged since a 0.25 percent increase in February 2007.

The board also decided to expand special funds-supplying operations in order to facilitate a fall in longer-term interest rates that are actually applicable to fund-raising by firms and relieve them from funding concerns.

Considering recent financial and economic conditions, the Policy Board also decided to expand special funds-supplying operations in order to facilitate a fall in longer-term interest rates that are actually applicable to fund-raising by firms and relieve them from funding concerns.

The central bank said the frequency of the operation will be increased to once in a week, which was previously conducted twice a month. Further, the duration of each loan will be extended to three months and loans will be offered through the end of September 2009 compared to its original target of the end of March 2009.

The bank's baseline scenario through fiscal 2010, in which expectations of both medium to long-term growth and inflation are assumed to remain generally unchanged, projects that the economy will start recovering from the latter half of fiscal 2009, with price declines abating as global financial markets regain stability and overseas economies move out of their deceleration phase, the minutes said. Although this scenario offers the prospect of the economy returning to a sustainable growth path with price stability in the latter half of the projection period, uncertainty is high.

The bank said it will purchase corporate bonds not exceeding 1 trillion yen from financial institutions and will commence first auction on March 4. All such purchases will be conducted by September 30, 2009. Corporate bonds that are eligible as the Bank's collateral are A rated or higher and with a residual maturity of up to 1 year at the end of the month in which the purchase is conducted.

The BoJ also decided to accept government-guaranteed dematerialized commercial paper as eligible collateral for the Bank's provision of credit. The Policy Board also added government guaranteed dematerialized commercial paper to the list of CP purchased with repurchase agreements. Further, the central bank said the U.S. dollar funds-supplying operations will be conducted for an extended period.

The Bank decided to take additional measures which, together with the effective use of existing facilities to provide liquidity, are expected to contribute to further ensuring stability in financial markets and facilitating corporate financing, the minutes said. The Bank will continue to carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as risk factors, and to exert its utmost efforts as a central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability.

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