The Bank of Japan pledged to enhance its supply of low-cost funds and extended its commercial paper buying scheme on Thursday as it battles a credit crunch that is pushing the world's second-biggest economy deeper into recession.
In a widely expected move the central bank kept interest rates unchanged at 0.1 percent and also announced an extension of steps to ease funding strains plaguing companies and banks, while beefing up its three-month fund-supply operations.
It also extended the deadlines for existing schemes, such as a 3 trillion yen ($32.05 billion) commercial paper buying programme, dollar funding operations and its acceptance of a wider range of assets as collateral.
"As expected, the Bank of Japan is focusing on measures to smooth corporate financing not just until the March fiscal year-end but through a longer period of time," said Kyohei Morita, chief economist at Barclays Capital Japan.
Although Japanese government bonds <2JGBv1> briefly dipped on disappointment from market players who expected more aggressive actions, most market players said the BOJ's decision was mostly in line with expectations.
The bank's governor, Masaaki Shirakawa, said on Thursday that term interest rates, those for periods longer than overnight such as three months, have remained high and that the bank will take necessary steps to stabilise markets.
For a graphic showing credit markets under pressure, click on: https://customers.reuters.com/d/graphics/JP_BOJ190209.gif
Japan's economy has been hit hard by the crisis set off by the U.S. housing market meltdown due to its heavy dependence on exports and chronically weak domestic consumption. Data this week showing Japan's worst quarterly decline since the 1974 oil crisis underscored the fragile state of the economy. [ID:nT74412]
The contraction of Japan's main export markets is pushing industrial giants such as Toyota <7203.T> and Sony <6758.T> deep into the red, prompting jobs and production cuts and setting the economy on course for its longest recession in modern times.
With the pain spreading to a network of suppliers, companies big and small are finding it hard to borrow as banks, hit by losses on their stock holdings and rattled by grim economic prospects, shy away from lending.
The three-month TIBOR rate <ZTIJPY3MD=>, a benchmark for interbank lending, has held above 0.70 percent even as the overnight call rate target has been cut from 0.5 to 0.1 percent in recent months.
Policymakers around the world have tried to break that vicious cycle by slashing policy rates, pumping funds into banks and rolling out stimulus packages to revive demand.
Where official rates are already near zero as in the United States and Japan, central banks have been experimenting with ways of channelling funds straight to cash-starved companies.
The Bank of Japan said it would buy 1 trillion yen of corporate bonds rated A or above and maturing within a year, giving shape to a scheme unveiled last month. It also extended other schemes aimed at the end of March, which marks the close of the fiscal year.
Japan also plans to spend 12 trillion yen ($128.2 billion) in fiscal stimulus programmes, amounting to more than 2 percent of its gross domestic product.
But most of the budget and related bills have yet to be passed by parliament as opposition parties control the upper chamber and can stymie government proposals.
