BLBG: Bank of Japan Is Said to Consider Emergency Lending Program
The plan may be presented to the central bank’s board as early as next month, the people said, speaking on condition of anonymity because the discussions weren’t public. BOJ Governor Masaaki Shirakawa and his colleagues are scheduled to meet on April 6-7 and on April 28.
Companies may face funding problems as they repair damage and pay wages while production is suspended due to power cuts, particularly smaller firms with less cash on hand or lines of credit. The BOJ effort would help avoid a jump in bankruptcies amid calls from lawmakers and business leaders for the central bank to do more to support the economy after the disaster.
“With sales plunging, companies are running out of cash on hand and they are asking for loans to stay in business,” said Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo. “The Bank of Japan will probably give some support to accommodate such demand.”
Japan’s top three commercial lenders said corporations have asked for loans totaling 2.6 trillion yen in the first two weeks after the quake, equivalent to 1.3 percent of city banks’ outstanding lending. About 600 businesses have asked for advice on post-quake financing from the Chamber of Commerce in Sendai, the largest city in the northeastern region.
‘Out of Cash’
“Companies are concerned about the risk of running out of cash on hand,” said Masanobu Abe, deputy head of Sendai Chamber of Commerce’s small business finance division, urging officials to ensure loans are made to smaller firms. “They are also worried because they can’t sell products due to the breakdown in transport and they may fail to collect debt and pay salaries.”
Prime Minister Naoto Kan aims to compile a supplementary budget next month to pay for relief and rebuilding after the magnitude-9.0 earthquake and tsunami in northeastern Japan left more than 27,000 dead or missing. It also crippled a nuclear energy plant that helps power Tokyo and surrounding areas.
Shirakawa has focused on providing liquidity to maintain financial stability, while rejecting more aggressive proposals for the central bank to directly finance government spending. The first business day after the temblor, the BOJ injected a record 15 trillion yen into money markets.
Equities Rebound
A surge in bankruptcies would threaten to deepen the hit to the nation’s economy just as investors grow more confident Japan will rebound later this year. The Nikkei 225 Stock Average, which had fallen as much as 18 percent from its March 10 close, rose for a second day today. Losses have been pared to 6.5 percent since the quake.
Details of the potential BOJ lending program haven’t been completed, the three people said. One said that credit may be offered in the form of one-year loans, and another said the rate on the funds could be 0.1 percent, equivalent to the upper bound of the central bank’s benchmark overnight rate target range.
The ruling Democratic Party of Japan’s fiscal commission today urged the BOJ carry out monetary policy flexibly in cooperation with the government. Keidanren, the country’s biggest business lobby, also urged the central bank to maintain “powerful” monetary policy easing.
Damage Estimate
Japan’s government this month said that direct damage from the disaster may reach 25 trillion yen, about 5 percent of gross domestic product and more than twice the total for the 1995 Kobe earthquake. Manufacturers including Toyota Motor Co. and Panasonic Corp. have suspended plants after the quake.
In the wake of the disaster, the BOJ pumped a record amount of funds into the financial system to calm markets. It also increased monetary stimulus by doubling to 10 trillion yen its program to buy assets such as government and corporate bonds.
After the 1995 Kobe earthquake, the central bank unveiled a 500 billion-yen loan program targeted at lenders operating in the quake-stricken region. It offered one-year loans at the BOJ’s 1 percent benchmark rate. The facility was extended by one year and lending totaled 271.5 billion yen.
The fillip provided by private and public investment in the aftermath of the 1995 earthquake helped the economic expansion accelerate for two years after three years of near zero growth. The World Bank last week said that it may take five years for Japan to rebuild though the economy will return to normal “very soon” once reconstruction work starts.
GDP Outlook
The disaster has prompted analysts to cut their growth forecasts. Economists at Goldman Sachs Group Inc. now see an expansion rate of 0.7 percent for the year starting April 1, compared with a previous estimate of 1.3 percent.
Capital Economics Ltd. is projecting gross domestic product will probably drop through June, with zero growth for 2011 as a whole.
Bank of Tokyo-Mitsubishi UFJ Ltd. received requests for about 700 billion in loans in the two weeks following the earthquake, said Shinya Matsumoto, a spokesman for the bank. Mizuho Corporate Bank Ltd. has received requests for about 900 billion yen, Masako Shiono, a spokeswoman for Mizuho said. Sumitomo Mitsui Banking Corp. received loan requests totaling 1 trillion yen, Chika Togawa, a spokeswoman for the bank, said.
Ryuzo Miyao, a BOJ board member, told reporters on March 23 that the bank will “seriously consider any possible policy measures to support reconstructions,” when asked about the possibility of introducing a special lending facility similar to the 1995 program.
To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net To contact the reporter on this story: Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net
