(For more stories on the Japanese economy, click [ID:nECONJP])
* BOJ to buy corporate bonds to ease financing strains
* BOJ keeps rates on hold, warns of 2 years of deflation
* Japan Dec exports plunge 35 pct vs yr ago in record slide
By Yuzo Saeki and Hideyuki Sano
TOKYO, Jan 22 The Bank of Japan said on Thursday
it would buy corporate bonds to ease a severe funding squeeze
that threatens to deepen a recession, and forecast the world's
No.2 economy to slide back into deflation for two years.
The BOJ left interest rates on hold at 0.1 percent but warned
the economy was worsening sharply, as new figures showed exports
plunging at a record pace while the yen hits 13-year highs.
The central bank delivered a similarly bleak warning about
deteriorating access to credit, saying it would take on new
credit risks to try to limit the economic damage from the global
financial crunch that has dried up corporate financing.
"Shirakawa frankly seemed quite worried about the uncertainty
over the economic outlook," said Hideo Kumano, chief economist at
Dai-Ichi Life Research Institute.
"His stance appears to be that if there are any more steps
that are deemed effective, the Bank of Japan will implement them
The Bank of Japan's moves are the latest by Japanese policy
makers scrambling to shield the economy from the global financial
storm that has pushed the economy into a deep recession.
Like the U.S. Federal Reserve, the central bank's interest
rates have been cut close to zero and it has offered various
measures debt measures to get cash into the financial system to
On Thursday, the BOJ said it would buy corporate bonds and
accept real estate investment trust (REIT) debt as collateral, on
top of previous plans to buy commercial paper, as it expands the
credit risks it is willing to stomach to help firms raise cash in
the face of gummed up financial markets.
"Commercial paper is the last resort for (companies) to raise
funds, and the functioning of that market has deteriorated," BOJ
Governor Masaaki Shirakawa told reporters. "So now we are trying
to help the market, and I think that means a lot."
The bleak economic outlook boosted short-term Japanese
government bond futures, while the REIT move boosted property
shares and helped the Nikkei share average .N225 climb 1.9
percent. [ID:nT21264] [JP/] [.T]
"The fact that the BOJ is going to take on credit risk is
significant. It is a serious announcement," said Jun Miyata, a
senior fund manager at T&D Asset Management Co, adding that the
central bank should buy a wider range of bonds.
Still, the BOJ's efforts would not provide much support for
smaller firms worst hit by the recession and in greatest need of
funds, said Yasuhide Yajima, an analyst at NLI Research
"Looking at the way exports are falling, the economy is
worsening on an unprecedented scale. It's true many of the steps
the BOJ is taking are unconventional, but they are simply not
enough," he said.
Yen interbank rates ZTIJPY= -- key reference rates for
credit markets -- have inched down, but only slowly in an economy
where distrust of longer-term lending runs high.
Three-month yen TIBOR was at 0.72 percent on Thursday, having
come off peaks of 0.91 a month ago but still significantly higher
than overnight cash rates near 0.1 percent.
DEFLATION COMING BACK
The BOJ warned Japan faced its second bout of deflation this
decade. It forecast core consumer prices would fall 1.1 percent
in the year to March 2010 and 0.4 percent the following year,
although Shirakawa himself carefully avoided saying the word
It is the first time the BOJ has forecast a return to
broad-based price declines, which can be debilitating for an
economy because consumers hold back purchases to wait for yet
For a graphic of the forecasts, click:
The central bank said it saw the economy turning up by early
next year but warned that uncertainty was high, and analysts said
this was pretty optimistic.
Exports, a key driver of Japanese growth in the past, show no
sign of recovery. They plunged in December a record 35 percent
from a year earlier as Asian consumers buckled under the global
financial crisis and the U.S. recession crushed demand for
electronics and autos. [ID:nT343750]
The collapse in exports pushed Japan deeper into recession in
the fourth quarter, analysts said, and with the global economy
crumbling and the yen at 13-year highs against the dollar, there
was no light at the end of the tunnel.
The central bank was similarly grim in its outlook.
"Exports are falling sharply on slowing overseas economic
growth. Domestic demand is also weakening as corporate revenues
as well as household's job and income environment worsens," the
BOJ said in a statement.
"Japan's economy is worsening sharply and is expected to
continue worsening in the near term."
Underlining the collapse in exports, electronics maker Sony
Corp (6758.T) said on Thursday it faced a $2.9 billion operating
loss this financial year, with the yen strength adding to woes
from sliding demand. [ID:nT20158]
Rising risk aversion and fears about the stability of the
U.S. and European banking-sectors pushed the yen to a 13-year
high of 87.1 per dollar on Wednesday. FXNEWS [FRX/]
Finance Minister Shoichi Nakagawa fired a shot across the
bows of currency markets, saying rapid moves in the yen were not
good, but analysts played down the risk of intervention.
With exports collapsing and the yen surging, the mood among
Japanese manufacturers' hit a new low, the Reuters Tankan survey
(Additional reporting by Tetsushi Kajimoto and Leika Kihara in
Tokyo, Vidya Ranganathan in Singapore; Writing by Rodney Joyce;
Editing by Hugh Lawson)