BoJ To Offer Upto 3 Trillion Yen Loans; Retains Key Rate At Historic Low

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The Bank of Japan decided on Tuesday to provide loans to commercial banks at the benchmark interest rate to spur lending. The central bank also maintained its key interest rate at a record low.

The new temporary measure will supply long-term funds to financial institutions against eligible collateral at a low interest rate. BoJ expects the financial institutions to take it as an opportunity to expand lending and investment to businesses that will lead to increased productivity or create new demand.

As a temporary measure, the Bank decided to introduce a new fund-provisioning framework to financially support private financial institutions' efforts of their own accord toward strengthening the foundations for economic growth, BoJ said in a statement.

The central bank will make necessary arrangements to start providing funds by around the end of August, 2010. The total amount of loans will not exceed 3 trillion yen and the amount of loans at each loan disbursement shall not exceed 1 trillion yen. The maximum amount to each bank will be 150 billion yen. Applications for the loans will be accepted till March 31, 2012.

The duration of each loan will be one year in principle and these can be rolled over up to three times, ie. maximum duration of the loan shall be four years. New loans are scheduled to be disbursed quarterly.

The central bank is targeting 18 specific areas for eligible loans or investment. In deciding the framework of the measure, the Bank said it will ensure that it does not directly involve itself in the allocation of funds to individual firms and industries. Further, the measure will not hamper the smooth conduct of interest rate policy and money market operations.

As expected, the Policy Board unanimously voted to leave the uncollateralized overnight call rate unchanged at 0.1%. The last change in the key rate was in December 2008. BoJ reiterated that it will maintain an extremely accommodative financial environment.

Governor Masaaki Shirakawa had instructed his staff in April to venture new fund provisioning measures to increase liquidity in the economy. In its previous policy board meeting held on May 21, the central bank had voted to offer one-year loans to commercial banks at overnight call rate.

Today, the central bank said it recognized that the economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability. "To end this, the Bank will continue to consistently make contributions as central bank." (Provided by RTTNews)

Japan Monetary Base Rises 3.7% On Year

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The monetary base in Japan jumped 3.7 percent on year in May, the Bank of Japan said on Wednesday, coming in at 98.432 trillion yen. That was sharply higher than analyst expectations for a 2.8 percent annual increase following the 2.9 percent gain in April.

Banknotes in circulation were up 0.6 percent on year, although coins in circulation eased an annual 0.4 percent.

Current account balances surged 22.9 percent on year, including an 18.6 percent annual spike in reserve balances.

Seasonally adjusted, the monetary base was up 12.4 percent to 97.479 trillion yen. (Provided by RTTNews)