By Mayumi Otsuma
Aug. 14 (Bloomberg) -- The Bank of Japan may extend its emergency credit programs into 2010 should funding conditions fail to improve enough, minutes from last month’s policy meeting show.
The central bank extended the steps for three months until Dec. 31 at the July 14-15 gathering because some companies were still struggling to obtain credit, according to the minutes released today in Tokyo.
“Another extension might become necessary if the bank’s judgment was that the situation had not improved sufficiently,” some members said. At the same time, “further improvement in the situation would justify termination of the measures.”
Governor Masaaki Shirakawa said this week that any recovery in the economy won’t be impressive as demand may not pick up enough to sustain growth. His remarks indicated that the bank won’t hurry to stop buying corporate debt from lenders and raise the key interest rate from 0.1 percent.
“The issue is whether the board can maintain its outlook for a recovery” in the second half of the year ending March 31, said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “If it can’t, it will probably extend the credit programs again, probably through March.”
Japan’s 10-year bonds rose for a fourth day on concern a global economic recovery may be weak, sending the yield two basis points lower to 1.39 percent at 11:19 a.m. in Tokyo. The yen traded at 95.33 per dollar from 95.48 late yesterday.
Return to Growth
The world’s second-largest economy probably grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country emerge from its worst postwar recession, the government is expected to say next week.
An index measuring demand for services unexpectedly rose in June, the Trade Ministry said today, spurred by Prime Minister Taro Aso’s 25 trillion yen ($262 billion) stimulus.
Since lowering the overnight rate in December, the central bank has been buying commercial paper and corporate bonds from lenders to funnel cash to companies. It has also offered to provide banks with limitless credit in exchange for eligible collateral. Economists surveyed by Bloomberg expect the key rate to stay unchanged at least through 2010.
‘Safety Valve’
Some board members said the commercial paper purchases acted as a “safety valve” for corporate funding even though bids by lenders to sell such debt failed to reach the amounts offered by the central bank in recent months. One policy maker said ending the purchases as scheduled in September would have a “considerable negative impact on market sentiment.”
Members agreed they should take into account that funding conditions have improved when they judge whether to extend the credit programs into 2010. Companies with high debt ratings are finding it easier to sell debt, while lower-rated businesses are still struggling to obtain credit, they said.
Federal Reserve policy makers this week extended by a month the scheduled end to a $300 billion program to buy U.S. Treasuries, signaling that they will avoid any rush to end their unprecedented efforts to promote lending and support an economic recovery. The Bank of England this month expanded its asset-purchase plan beyond the previous limit, saying the U.K.’s recession has been deeper than officials anticipated.
GDP Report
Japan’s gross domestic product grew an annualized 3.9 percent in the quarter ended June 30, following a record drop of 14.2 percent in the previous three months, according to the median estimate of 22 analysts surveyed before the report due Aug. 17.
Confidence in the Japanese and global economies climbed to a 22-month high in August, according to a survey of Bloomberg users published this week.
More than $2 trillion in emergency spending by governments worldwide has buoyed sales for Japanese makers of cars and electronics. Even so, economists say any recovery is likely to be weak because deflation will persist and shrinking profits will force companies to cut spending and shed workers.
“Japan’s economy is currently riding on a minor upward trend, but we expect it will start losing momentum later this year,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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