BOJ keeps key rate at 0.1%, forgoes decision on emergency steps+

TOKYO, Oct. 14 Kyodo - The Bank of Japan decided Wednesday to hold its key interest rate steady at 0.1 percent as widely expected, while refraining from making a decision on ending its emergency funding steps that expire at the end of this year.

BOJ Governor Masaaki Shirakawa said at a press conference after holding a
two-day policy meeting that corporate financing was improving overall, but some
severity remains among small- and medium-sized companies.
He said the central bank will decide on the fate of its temporary measures
aimed at channeling funds to companies at ''an appropriate timing'' during or
after the bank's next policy meeting on Oct. 30.
At the latest policy meeting, the central bank upgraded its economic view,
saying, ''Japan's economy has started to pick up.'' But it kept the assessment
on the financial environment unchanged, saying that some severity lingers
although there are increasing signs of improvement.
Earlier this year, the BOJ started purchasing outright corporate bonds and
commercial paper from financial institutions and providing them with unlimited
loans against eligible collateral to keep credit flowing to cash-strapped
companies amid the financial crisis. The central bank needs to decide the fate
of the funding measures before they expire Dec. 31.
Since recent improvements in capital markets reduced demand for the BOJ's
temporary corporate debt purchase program, speculation had been rife that the
central bank may decide to scrap the emergency support as early as at this
policy meeting. As for the special loan program, some observers expect the step
may be extended beyond the expiration date as the support is still in demand.
In July, the BOJ extended the expiration date of all those measures by three
months to Dec. 31 as the temporary programs were previously set to expire at
the end of September.
Shirakawa said no matter when it unwinds its emergency funding steps, the
central bank will keep its current super-low interest rate policy for the time
being to support the economy's recovery.
''No matter how we treat the temporary steps, the BOJ will continue the current
super-low interest rate policy,'' he said.
Shirakawa said companies have gained better access to funds through the
issuance of commercial paper and corporate debt, adding his view remains
unchanged that fewer businesses are being supported by the bank's measures of
corporate debt purchase.
The BOJ refrained from deciding what to do with the temporary steps after
Cabinet ministers of the new Japanese government made a series of comments,
checking the BOJ from unwinding its unconventional funding support program.
Most recently, Financial Services Minister Shizuka Kamei on Wednesday morning
repeated his call for the BOJ to watch the real state of the economy and to
think carefully about terminating the steps.
As for the state of the Japanese economy, the BOJ said exports and production
have increased and business sentiment has improved, especially at large
manufacturers, on the back of recovery in overseas economies, notably emerging
economies, and increasing public investment.
But private consumption remains generally weak amid severe employment and
income conditions. ''Risks to the economy remain on the downside,'' it said.
The BOJ's eight-member Policy Board voted unanimously to keep the rate steady.
The central bank last cut its target rate for unsecured overnight call money in
December, lowering the rate from 0.3 percent.
==Kyodo
2009-10-14 23:05:59