Shirakawa Says BOJ to Focus on Credit for Companies

By Mayumi Otsuma

Dec. 22 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said the central bank needs to focus on making funds available to companies since the benchmark interest rate is close to zero.

“Given that the interbank overnight rate is so low, the focus needs to be placed on how to improve the availability of funds and alleviate the cost of corporate borrowing,” Shirakawa said today at a business meeting hosted by Keidanren, Japan’s largest business lobby.

The central bank lowered the overnight lending rate on Dec. 19 to 0.1 percent from 0.3 percent, the second cut in two months, and offered to buy corporate debt and more government bonds to pump cash into the economy. The bank has pledged to explore other measures to ease the credit shortage and counter the deepening global recession.

“The BOJ unveiled a variety of measures, but it probably won’t mean the end of the bank’s attempts to support the economy,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Japan’s economy will continue to worsen next year and the bank will come under pressure to do more.”

The central bank offered to buy commercial paper, or short- term corporate securities, outright for the first time. The step is aimed at making it easier for companies to issue debt and ease a credit crunch before the fiscal year ends on March 31.

The decision followed a report last week that showed the sharpest drop in business confidence in 34 years and a surge in the yen to a 13-year high.

‘Exceptional Step’

Shirakawa today repeated that purchasing corporate debt and assuming credit risks of companies on its balance sheet is an “exceptional step taken by a central bank.”

“If a central bank directly assumes companies’ credit risk, that would be taking over the business of private financial institutions,” Shirakawa said. The role of a central bank is to “indirectly support” lending by providing “liquidity through money market operations by making corporate debt eligible as collateral” for commercial banks, he said.

It’s also necessary to discuss how the central bank and the government should divide responsibility should companies default on debt, the governor said. The U.S. Federal Reserve buys commercial paper only with highest credit ratings, he added.

Separately, the central bank today cut its assessment of the economy, using the language “deteriorating” for the first time since 2002. Shirakawa said exports will probably decline significantly because of the yen’s strength and the global slowdown. Japan’s exports plunged the most on record in November, a government report showed today.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net