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BOJ eyes urgent loans of US$13b
By Jay Alabaster |
January 9, 2009, Friday
|
Print Edition
Print Edition
THE Bank of Japan yesterday said it will provide 1.22 trillion yen (US$13 billion) in emergency loans to financial institutions as part of a new program to spur lending to the country's businesses.
Japan is mired in a recession with little relief in sight, and many of its major financial institutions have tightened their purse strings, cutting back on purchases of bonds and commercial paper from domestic companies.
This can paralyze the country's businesses, which rely on such mostly short-term funding to underwrite their everyday operations. The situation is expected to get worse at the end of the fiscal year in March, when demand for new funds increases.
Under the new program, Japan's central bank will accept bonds, commercial paper and short-term debt issued by companies as collateral and provide low interest loans to the country's banks, hoping to encourage lending back to the companies, said Hidetsu Chida, a BOJ official.
There is no limit to the amount of loans the BOJ can provide, and it will issue the loans until the end of March in a total of six lending operations.
The interest rate for the loans is 0.1 percent, the same as the BOJ's benchmark overnight rate. Longer-term loans typically have higher interest rates.
As the housing bubble in the United States burst, risky lending of mortgage-backed securities by financial institutions around the world was exposed, and many banks had to be bailed out through government intervention.
Japan is mired in a recession with little relief in sight, and many of its major financial institutions have tightened their purse strings, cutting back on purchases of bonds and commercial paper from domestic companies.
This can paralyze the country's businesses, which rely on such mostly short-term funding to underwrite their everyday operations. The situation is expected to get worse at the end of the fiscal year in March, when demand for new funds increases.
Under the new program, Japan's central bank will accept bonds, commercial paper and short-term debt issued by companies as collateral and provide low interest loans to the country's banks, hoping to encourage lending back to the companies, said Hidetsu Chida, a BOJ official.
There is no limit to the amount of loans the BOJ can provide, and it will issue the loans until the end of March in a total of six lending operations.
The interest rate for the loans is 0.1 percent, the same as the BOJ's benchmark overnight rate. Longer-term loans typically have higher interest rates.
As the housing bubble in the United States burst, risky lending of mortgage-backed securities by financial institutions around the world was exposed, and many banks had to be bailed out through government intervention.
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