By Mayumi Otsuma Oct. 15 (Bloomberg) -- The Bank of Japan said it will offer lenders as many dollars as they want, joining European counterparts in attempting to lower borrowing costs in money markets and freeing up credit worldwide. The central bank will provide dollars at fixed interest rates for an ``unlimited amount against pooled collateral,'' it said in a statement late yesterday. It also announced measures to improve companies' access to cash, expanded the range of Japanese government bonds it buys from lenders, and suspended a program of selling shares it bought from banks between 2002 and 2004. The Bank of Japan's supply of dollars comes from an agreement with the U.S. Federal Reserve last month to swap as much as $120 billion for yen. The increase to unlimited dollar supply came a day after the Fed removed caps on swap lines with the European Central Bank, Bank of England and Swiss National Bank. The Fed confirmed in a statement the same move for Japan. Flooding the global financial system with the world's reserve currency helped stock markets rebound after last week's 20 percent slide in the MSCI World Index. Japan's Nikkei 225 Stock Average surged 14.2 percent yesterday, its biggest-ever gain. It fell 1.4 percent in today's morning session in Tokyo. ``The Bank of Japan unveiled a wide range of concrete measures along with the anticipated dollar-supply expansion,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``They're not revolutionary remedies, but they will at least stop further deterioration of stocks and money markets.'' Extra Steps Bank of Japan Governor Masaaki Shirakawa said in parliament today that the policy board is considering additional steps. ``There are various ways to stabilize markets that we can consider, other than providing liquidity,'' he said. After yesterday's meeting he told reporters that the BOJ was examining paying interest on the reserves lenders hold at the central bank. ``Tensions in global financial markets have been rising, and that's starting to affect Japan's money markets,'' Shirakawa said yesterday. ``We're seeing some strains in fund-raising conditions.'' The rates that banks charge each other for dollar loans have surged since the collapse of Lehman Brothers Holdings Inc. last month caused credit to dry up. The London interbank offered rate, or Libor, for three-month dollar loans dropped to 4.64 percent yesterday, the British Bankers' Association said. The rate is still more than three times the Fed's target of 1.5 percent. In Japan, banks' reluctance to lend contributed to a 34 percent increase in business failures last month, the fastest pace in eight years. Fuji Biomedix Co., a tester of medicines, yesterday filed for bankruptcy, saying banks refused to lend it money because of the financial turmoil. Overnight Rate The cost of overnight borrowing in yen fell today, prompting the central bank to drain 1 trillion yen ($9.9 billion) from the financial system. The overnight call loan rate traded at 0.21 percent at 10:52 a.m., below the bank's 0.5 percent target. The policy board kept the target rate on hold at yesterday's meeting in a unanimous vote. The bank didn't participate in last week's joint rate cut by central banks in North America and Europe, saying Japan's borrowing costs are already ``very low.'' ``We maintain the stance that increases and reductions of interest rates will be decided based on the state of the economy,'' Shirakawa said at yesterday's briefing. Japan's financial system is relatively stable so there's no need to fully guarantee bank deposits and interbank loans, the governor said. The central bank said it will increase the frequency and size of commercial paper purchases to improve companies' access to funding, according to the statement. It will also broaden the range of asset-backed commercial paper the bank accepts as collateral until the end of April. Commercial Paper Shirakawa said the cost of selling commercial paper, or short-term corporate debt, is increasing. Companies issue commercial paper to get cash for day-to-day activities such as payroll and rent. The central bank will also add floating-rate, inflation- indexed and 30-year government bonds to the list of securities for its repurchase operations. The bank's decision to halt the sale of shares it owns came after the Nikkei 225 had the worst-ever weekly decline last week. The Bank of Japan bought 2 trillion yen ($19.6 billion) in shares from Japanese banks between 2002 and 2004 to protect their capital from being eroded by equity values that slumped to a two- decade low. It began selling the shares in the year ended March 2007, and held 1.4 trillion yen as of the end of March, according to the bank's most recent financial statement. The central bank said when to resume selling the shares requires the approval of the policy board. Shirakawa said the timing depends on the condition of the stock market. Finance Minister Shoichi Nakagawa said yesterday that the government will halt the sale of state-owned shares it bought since 2002, ease restrictions on company buybacks and urge greater disclosure of short selling. Japan is also considering reviving a law allowing it to purchase stakes in regional banks. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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