Japan Wanted BOJ to Expand Corporate Bond Program

By Mayumi Otsuma

March 24 (Bloomberg) -- Japan’s Finance Ministry asked the Bank of Japan to consider expanding its corporate-bond purchase program to channel more funds into the economy, meeting minutes from last month show.

“The government would like the bank to support the economy from the financial side by providing funds more actively,” according to minutes of the Feb. 18-19 meeting released today in Tokyo. “The government would like the bank to consider expanding the scope” of its corporate debt purchases.

The bank hammered out details of the corporate bond purchase plan at the gathering. Having lowered the key interest rate to 0.1 percent in December, the central bank has since been focusing on lowering borrowing costs for companies by buying assets from banks.

“The scope of the unconventional measures taken by the BOJ is truly wide,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “The central bank may decide to expand them further in the months to come.”

At the meeting, the central bank said it would buy as much as 1 trillion yen ($10 billion) in bonds rated A or higher, adding to the plan to buy as much as 3 trillion yen in commercial paper, or short-term company debt.

Exit Strategy

Members also agreed to extend a commercial paper purchase program as well as an unlimited collateral-backed lending facility for lenders. Some of them said that the bank should avoid prolonging those measures because investors and traders may “take them for granted and consequently terminating them smoothly might become difficult.” The bank should consider “an exit strategy in advance,” those members said.

The central bank last week increased its purchases of government bonds from banks and said it would extend subordinated loans to lenders as it widens efforts to counter the nation’s deepening recession.

Companies’ borrowing costs have fallen since the central bank offered to buy corporate debt.

The spread on three-month commercial paper issued by companies rated A1 against government financing bills of the same maturity has fallen to 29 basis points from 141 before the bank’s Dec. 19 announcement that it would buy the debt.

Japanese banks’ borrowing costs have also eased. The Tokyo three-month interbank offered rate, or Tibor, a measure of the cost of lending between banks, fell to 0.678 yesterday, down from a decade-high 0.922 percent on Dec. 16. Some members at the meeting said it would be hard to directly influence the rate.

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