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Bank of Japan likely to extend corporate support

BANK of Japan Governor Masaaki Shirakawa said many firms still face tight funding conditions and a severe lending attitude from banks, reinforcing views the central bank will likely extend corporate financial support beyond September.

As Japanese banks fell into the red in the financial year that ended in March, Shirakawa said financial institutions needed close monitoring, although Japan's financial system was getting calmer as a whole.

"Looking at Japan's financial conditions, the environment surrounding the issuance of commercial paper and corporate bonds is improving further, and bank lending mainly toward big firms has been rising at high levels," Shirakawa said yesterday in a speech to a meeting of the central bank's regional branch managers.

"Many firms still face a tight funding and lending attitude from banks, although there are signs that the trend has stopped deteriorating."

Shirakawa's remarks come after the BOJ's tankan corporate survey released last week showed that Japanese business sentiment improved less than expected in June while the corporate finance market, which seized up after the collapse of US investment bank Lehman Brothers in September, was on the mend.

"Shirakawa hardly suggested he was confident about improvements in corporate finance. Basically, the BOJ is likely to extend corporate financial support even if it may tweak some operations," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities.

Hasegawa said economic activity is at low levels and corporate profits are bleak, as the survey showed, so there is little reason for the BOJ to take a step that could be seen as monetary tightening given the huge amount of slack in the economy and the risk of Japan falling deeper into deflation.

In a sign that Japan's second bout of deflation in less than two years is deepening, core consumer prices fell at a record 1.1 percent in the year to May, while Japanese wholesale prices are expected to fall at a record pace in June from a year earlier.

Adding to the fear of deflation and illustrating weakness in final demand, the government estimates that supply exceeds capacity by an annual sum of 45 trillion yen (US$471 billion).

Shirakawa reiterated that the Japanese economy has begun to stop worsening and is likely to show clearer evidence of leveling out as exports and industrial output are expected to continue to recover and public investment will keep increasing.


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