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Bank of Japan looks at buying up even more corporate debt

BANK of Japan Deputy Governor Hirohide Yamaguchi said that the central bank may need to expand its purchases of corporate debt to prevent a credit shortage from worsening the recession.

"We can't deny corporate financing will become even more difficult" toward the fiscal year end on March 31, Yamaguchi said in an interview with Bloomberg News in Tokyo on Thursday, his first since joining the board in October. "If that happens, we'll consider whether we can enhance operations already implemented and act if necessary."

Yamaguchi is the first member of the board to hint at further policy actions since it unveiled the plan to purchase corporate bonds from banks last month. Having cut interest rates to close to zero, the central bank is buying assets to channel funds to businesses whose profits are falling the most in more than 30 years as demand dries up at home and abroad.

Toyota Motor Corp, Honda Motor Co and Mazda Motor Corp said this week that they may request government loans as demand plunges.

The Finance Ministry said on Tuesday that it would use some of its foreign-exchange reserves to enable the state-owned Japan Bank for International Cooperation to increase lending.

Tensions in markets

"The Bank of Japan seems prepared to beef up its operations," said Hiroshi Shiraishi, an economist at BNP Paribas Securities Japan Ltd in Tokyo. "We're still seeing tensions in financial markets with banks tightening their lending attitudes and corporate sales declining."

The Nikkei 225 Stock Average's 16 percent drop this year, on top of a record 42 percent decline in 2008, has eroded banks' capital, making them reluctant to lend before companies close their books this month.

"Japan's economy will remain in a severe condition beyond the fiscal year end," said Yamaguchi.

"The speed and magnitude of the deterioration is something we haven't experienced for decades."


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