Japan’s central bank is to set up a new fund to lend around $US33 billion (3 trillion yen) to companies for up to four years to finance new business and expansion.
The Bank of Japan announced the new lending plan yesterday as was widely expected while leaving its key interest rate steady on 0.1%. The scheme was outlined late last month.
The new lending facility will be temporary, with funds possibly available by "about" the end of August, the central bank said.
The idea is that the money will be lent to financial institutions to then lend to companies with the objective of raising productivity and creating new consumer demand.
The scheme will be in place for the next two years and borrowers will be able to roll over the funds three times after the original grant.
The maximum amount to be loaned to banks will be capped at 1 trillion yen, or just over $US1.3 billion and the maximum to be loaned by banks will be 150 million yen.
The money will cost the 0.1% benchmark rate, a sign the central bank is desperate to inject money as directly and cheaply as possible into the heart of business, the manufacturing and service sector.
The BOJ said it was targeting 18 areas with the new loan scheme.
These were:
1) Research and development,
2) Starting new businesses,
3) Business reorganisation,
4) Investment and business deployment in Asian and other countries,
5) Science and technology research at universities,
6) Social infrastructure,
7) Environment and energy,
8) Natural resources,
9) Healthcare,
10) Businesses serving senior citizens,
11) Content creation,
12) Tourism,
13) Regional and urban revitalisation,
14) Agriculture, forestry and fisheries,
15) Housing,
16) Disaster prevention,
17) Job support,
18) Childcare.
But the financial sector will be the conduit, as the central bank says it doesn’t want to get involved in capital allocation issues.
“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said.
"Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.”
The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries”.
But like some previous measures, this is not a lot of money compared to the size of the economy or the extent of the problems. It has all the hallmarks of a bunch of bureaucrats trying to be seen to be doing ‘something’ rather than doing something meaningful.
With a new government and a new Prime Minister, the move by the Bank of Japan is a sign it wants to work with, and not fight, PM Naoto Kan.
Mr Kan said in parliament on Monday that his government and the BoJ bank will work together to stamp out deflation.
Last week, he warned that his administration had to curb Japan’s huge debt burden or Japan could “go bankrupt” if remedies aren’t taken.
He promised a plan by next Tuesday (for the G-20 meeting) on limiting Japan’s debt burden for the coming year to less than $US500 billion.
(That figure illustrates the ‘smallness’ of the BoJ’s proposal yesterday.)
That debt ceiling proposal now might be released on Friday to reassure markets (and to try and show the government is ahead of the curve on this issue).
The Bank of Japan yesterday also offered to provide US dollar loans to banks at 1.23% to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis.
The bank joined with the global US dollar swaps arrangements that were restarted in May by the Fed, the BoJ, the European Central Bank, the Bank of England, Swiss National Bank and the Bank of Canada.
The central bank also said the country’s economy "shows further signs of a moderate recovery, induced by improvement in overseas economic conditions".
