Bank of Japan Will Hold Emergency Meeting on Funding, NHK Says

By Tak Kumakura and Mayumi Otsuma

Dec. 1 (Bloomberg) -- The Bank of Japan will hold an emergency meeting this week to consider accepting a broader range of collateral from lenders as a way to help companies obtain funding, public broadcaster NHK said.

The central bank will discuss creating a special lending program for the first time in 10 years, NHK reported on its Web site today, without saying where it got the information. Under the plan, commercial banks would be able to use corporate bonds with lower credit ratings as collateral for obtaining cash from the central bank, the report said.

A record number of publicly traded Japanese companies went bankrupt this year as the global credit crisis made banks less willing to lend. The corporate debt market has closed to all but the top-ranked companies, and interest rates banks in Tokyo charge each other have increased in each of the past 15 days.

“Commercial banks remain reluctant to lend to each other as long as they are worried about counterparty risks in financial markets, which is the core of the ongoing problem,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “This situation won’t improve much even if the central bank and the government launch policy steps.”

Bank of Japan Chief Press Officer Yoshihiro Sugimoto told Bloomberg News that the central bank doesn’t comment on whether unscheduled meetings will be held.

The central bank’s extended collateral program would stay in place until April to help companies get cash needed to settle accounts at the end of the calendar and fiscal years, NHK said.

Reluctant to Lend

The Bank of Japan currently accepts the top seven of 10 investment-grade corporate bonds that are publicly placed. It also takes AAA-rated asset-backed securities and some higher grades of asset-backed commercial paper.

Lending between banks has tightened in Japan even after the central bank’s Oct. 31 decision to cut its benchmark overnight lending rate to 0.3 percent from 0.5 percent. The three-month Tokyo interbank offering rate, or Tibor, rose for the 15th straight day to 0.876 percent on Nov. 28, 576 basis points higher than the target for overnight lending on Nov. 28. Three- month Tibor was 0.388 basis points higher on Oct. 30.

Bank of Japan Governor Masaaki Shirakawa acknowledged last month that the key-rate cut hasn’t been reflected sufficiently on other borrowing costs. Last month he instructed his staff to study new ways of making money available for lending.

Strains Reach Japan

“Strains in global financial markets are reaching Japan and investors are increasingly avoiding risks,” Shirakawa said on Nov. 21. “Conditions for businesses to borrow from markets are worsening” as credit spreads widen and companies have to cancel sales of bonds and commercial paper, he said.

Morimoto Co., a property developer, went bankrupt last week, citing difficulty obtaining finance in the wake of the credit crisis. The company’s collapse brought the number of failures of publicly traded companies in Japan to 30 this year, a postwar record, based on information from Teikoku Databank Ltd.

The balance of commercial paper, which companies use for short-term funding, fell to 12.8 trillion yen ($134 billion) in October, the lowest since March 2002.

Corporate bond sales in Japan plunged 45 percent in November from a year ago as the world’s second-largest economy fell into its first recession since 2001, data compiled by Bloomberg show. NTT DoCoMo Inc. and Nippon Steel Corp. paid higher yield premiums last week when they sold the first bonds outside the public works sector since Oct. 15.

Shirakawa, who will give a speech later today in Fukuoka, southwestern Japan, has indicated he’s reluctant to lower the benchmark rate again and revive a 2001-2006 policy of keeping borrowing costs near zero percent. Further reductions could impede the flow of funds in the money market by making returns so low that investors have little incentive to trade, he said at least six times last month.

To contact the reporters on this story: Tak Kumakura in Tokyo tkumakura@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net