Bank of Japan steps up support for corporates

The Bank of Japan has expanded its programme of supporting corporate debt, in an attempt to shore up the country's rapidly contracting economy.

Next month, the bank will start regular purchases of short-dated corporate bonds with credit ratings of at least A and residual maturities of up to a year. The bank will buy up to ¥1 trillion ($10.8 billion) in corporate bonds until the end of September, limiting purchases to ¥50 billion from any one issuer.

The bank will also step up its lending against corporate bond collateral - starting next week, lending will take place every week rather than twice a month; loans will be for three months rather than one to three months; and the programme will continue until the end of September (it was previously scheduled to end in March). The fixed rate of 0.1% will remain unchanged, the bank said. Other existing support programmes - including outright purchases of commercial paper, and US dollar-denominated lending - have also been extended, and the bank will now lend against government-guaranteed commercial paper.

Japan recently announced a 3.3% fall in GDP in the last quarter of 2008, and the bank's projections are gloomy. While its baseline scenario still predicts a recovery starting in the second half of this year, it stressed the downside risks involved with falling exports and a global recession, and warned that the downturn could last significantly longer. The bank said it would leave its overnight target rate unchanged at 0.1%.

The decision follows the bank's move on January 23 to start buying up commercial paper, which it said was justified by a "significant decline in market functioning of corporate financing instruments". In December 2008, it agreed to accept lower-rated corporate bonds -BBB and above - as collateral for loans.

See also: Bank of Japan steps up support for corporate borrowing