July 21 (Bloomberg) -- Bank of Japan is likely to consider when to end its three unprecedented credit programs separately, minutes show. “Since each measure was different in its purpose and framework and in its effects on financial markets and overall financial conditions, the future of the measures should not be examined collectively but individually,” members said in minutes of the June 15-16 meeting published in Tokyo today. The central bank last week extended its policies of buying corporate debt from banks and providing them with unlimited loans until the end of the year, citing “severe” borrowing conditions amid the worst postwar recession. Governor Masaaki Shirakawa said the same day that keeping the “extraordinary” steps for too long could distort credit markets. “The risk of further financial and economic shocks is clearly still high,” said Julian Jessop, chief economist at Capital Economics Ltd. in London. “If conditions do continue to improve, demand for emergency facilities should fall away of its own accord, or the bank could simply withdraw them.” Since lowering its overnight lending rate to 0.1 percent in December, the bank has been buying commercial paper and corporate bonds from lenders, as well as providing them with unlimited credit in exchange for approved collateral. The expiry date for all three programs was pushed to Dec. 31 from Sept. 30 last week. Ending Policies The policy makers agreed that when to end the steps depends on the state of financial markets and corporate borrowing, and that keeping the policies for too long could cause “swings in economic activity and prices.” One member said the bank should start considering ways to end the policies because companies are finding it easier to sell commercial paper and bonds, the minutes show. Other policy makers said companies are still struggling to raise funds. The extra steps function as a “safety net,” a member said. Shirakawa said last week that there has been “excessive moves” in credit markets, pointing to instances where interest rates on corporate debt fell below yields for government securities. The central bank last week raised its assessment of the economy for a third month, citing an increase in government spending and rebounds in factory output and exports. The economy has “stopped worsening,” the bank said, while adding that the economic outlook is “uncertain.” Long-Term Rates Some members said an increase in long-term interest rates owing to concern among investors about fiscal discipline might hurt the economy. If rates rise “too fast relative to the pace of economic recovery, this might pose a downside risk to the outlook for the economy,” they said. Ten-year government bond yields have fallen since climbing to an eight-month high of 1.56 percent in June. The yield rose two basis points to 1.34 percent at 12:12 p.m. in Tokyo as rising stocks reduced demand for the safety of government debt. “The economy may continue to improve through the end of the year, but its momentum will probably remain very weak as deflationary pressure lingers and jobs and incomes won’t improve much,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “If the bank judges the economy by its level, they are far from exiting.” Japan’s gross domestic product will probably contract 3.4 percent in the year ending March 2010, the bank said last week, more than the 3.1 percent it forecast in April. The economy will grow 1 percent next fiscal year, less than the 1.2 percent predicted three months ago, the central bank said. Some members said accommodative monetary policies worldwide may have fueled recent gains in commodity prices, according to the minutes. They said commodity cost increases may hurt the economy by worsening Japan’s terms of trade. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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