RPT-SCENARIOS-BOJ might extend finance measures beyond Sept
(Repeats item that first ran late on Friday) (For more stories on the Japanese economy, click [ID:nECONJP])
TOKYO, July 10 (Reuters) - The Bank of Japan might announce next week that it will extend measures to support corporate finance but is almost certain to keep its policy rate unchanged at 0.1 percent.
Confidence in the strength of any recovery is fragile, so the BOJ is likely to extend the measures, which include buying commercial paper and corporate bonds from banks and long-term loans to banks at 0.1 percent interest, beyond September.
Central bankers will also discuss how the economy is doing compared with the central bank's half-yearly economic outlook report. Here are some scenarios on the meeting:
ANNOUNCE AN EXTENSION OF SUPPORT FOR CORPORATE FINANCE:
This is likely either next week or in the August meeting. The majority view within the Bank of Japan is that the extraordinary measures should be extended beyond their September deadline without significant changes.
While some Bank of Japan officials say signs of recovery in the economy and in credit markets may call for a retreat from the measures, most argue conditions remain tough enough to warrant an extension.
Retreating too early would send the wrong signal and could set the economy back at a time when it has excess production capacity and labour following four straight quarters of contraction.
Still, the more hawkish view may demand tighter terms for the support measures if they are extended. Some view the measures as effectively distorting the normal workings of the economy, which they say should be left up to market forces.
Announcing an extension is unlikely to have impact in financial markets, which have priced in such a decision.
Central bank officials say they are not following any particular data to help shape their opinions. However, the outcome of the July Bank of Japan tankan survey of corporate sentiment was important in their thinking.
That showed funding conditions for big companies had improved for the first time in eight quarters, but it also showed that small firms, which employ 70 percent of the Japanese workforce, were struggling to gain access to credit.
Indeed, BOJ Governor Masaaki Shirakawa acknowledged in a meeting of the central bank's regional heads that many firms still face tough funding and bank lending conditions.
The BOJ is also expected to extend its dollar funding operations beyond October, just as other central banks have done.
MORE UPBEAT ON THE ECONOMIC OUTLOOK
This is doubtful. The central bank is expected to stick pretty much with the outlook it gave in its twice-yearly economic outlook report in April.
Last month it upgraded its economic assessment, saying the economy had begun to stop worsening and would likely show clearer evidence of levelling out in coming months.
However, it also noted the outlook remained highly uncertain with companies not yet convinced a recovery, if any, would be sustainable.
The economy is considered to have pulled out of its deepest recession in decades. Many economists predict fairly robust growth in April-June thanks to a rebound in output and exports from the first quarter's low levels.
So essentially, the economy is tracking the projection the BOJ made in April of a slow return to moderate growth later this year as the world economy picks up.
The central bank does not see the need to change that outlook, and it may only make minor tweaks to its projection on growth and prices to reflect the most recent figures, officials said.
But that does not mean the BOJ is growing confident on the economic outlook, they said.
Rising domestic unemployment and plummeting capital spending could overwhelm any benefits from a pick up in exports.
Highlighting such risks, data showed earlier this week that machinery orders fell to a record low, pointing to doubts among Japanese manufacturers about the outlook of the world economy. (Editing by Neil Fullick)
