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BOJ extends schemes and pledges to boost funds supply

THE Bank of Japan extended its commercial paper buying scheme yesterday and pledged to boost supply of low cost funds 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, but announced several steps to ease funding strains plaguing companies and banks, including beefed up three-month fund-supply operations.

It also extended the deadlines for existing schemes, such as the 3-trillion-yen (US$32.05 billion) commercial paper buying program, 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.

"The significance is also on what the BOJ decided not to do, such as reverting to quantitative easing or boosting outright government bond purchases. Even after the terrible October-December GDP numbers, the BOJ thinks what it must do is ease corporate funding strains, not recklessly flood markets with money," he said.

Bonds lose

Japanese government bonds extended losses on disappointment the central bank refrained from actions aimed at directly bringing down longer-term money market rates, such as increasing buying of Treasury bills.

Japan's economy has been the hardest hit by the crisis set off by the United States housing market meltdown, due to its heavy dependence on exports and chronically weak domestic consumption.

This week's data, which showed Japan suffered its worst quarterly decline since the 1974 oil crisis, underscored the fragile state of the economy.

The collapse of Japan's main export markets is pushing industrial giants such as Toyota and Sony deep into the red, sparking jobs and output cuts and setting the economy on course for its longest recession in modern times.

With the pain spreading to a network of suppliers, firms 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.

Policy makers globally have tried to break that vicious cycle by slashing policy rates, pumping funds into banks, rolling out stimulus packages to revive demand.


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