CORRECTED - CORRECTED-WRAPUP 2-BOJ unveils $32 bln move to ease funding stra

(Corrects headline figure to $32 bln from $59 bln)
(For more stories on the financial crisis click [ID:nCRISIS])

By Hideyuki Sano

TOKYO, Dec 2 (Reuters) - The Bank of Japan unveiled 3
trillion yen ($32 billion) in new measures on Tuesday to ease an
acute squeeze in corporate funding from the global financial
crisis in the lead up to the end of the year.

The central bank, which kept rates steady at 0.30 percent at
the emergency meeting where it approved the new measures, said it
would accept a wider range of corporate debt as eligible
collateral and launch a new scheme to make it easier for banks to
make loans to companies.

"These measures alone cannot determine the shape of the
economy but they will have an effect in improving corporate
finance, which has been worsening," BOJ Governor Masaaki
Shirakawa told reporters.

"The severity of financing conditions for small to mid-sized
firms is higher than that of big companies. But financing at big
companies is becoming more severe as conditions for funding via
markets with corporate bonds and commercial paper are
deteriorating."

Japanese firms have been caught by both falling demand for
their goods, as Europe and the United States slide into recession
and growth slows in Asia, and a funding squeeze as banks and
investors shun risk and hoard cash.

"The BOJ wanted to do something to ease credit strains
without cutting rates, so this was the obvious answer," said
Koichi Haji, chief economist at NLI Research Institute.

"But if global financial conditions deteriorate further, the
bank may have to eventually cut rates to zero possibly early next
year."

The Bank of Japan has come under pressure from the money
markets to take more aggressive funding steps as credit strains
have driven up corporate borrowing costs at the fastest pace
since Japan's financial crisis a decade ago.

Growing fear of a global recession has rocked financial
markets around the world with Japan's Nikkei stock average .N225
sliding 6 percent on Tuesday after a slide on Wall Street on
Monday. [.T] [.N]

Euroyen futures extended their gains, rising 5.5 basis points
to 99.280 JEYv1 from 99.240 before the BOJ's announcement.

SLIDING CONFIDENCE

The BOJ's moves came after a Reuters poll showed
manufacturers' confidence falling at its sharpest on record,
adding gloom to an economy already in recession and fuelling
debate about further rate cuts. [ID:nT66755]

Shirakawa again played down any plans to cut interest rates,
stressing he had little room to move.

"With regard to the possibility of a further cut in interest
rates, we've said we should be aware that very low interest rates
could harm the functioning of money markets," he said.

The BOJ will launch a new scheme in January under which it
will lend unlimited funds to financial institutions at the
overnight call rate against corporate debt as collateral.

The BOJ, which until now has only accepted corporate debt
rated single-A or higher as collateral for its fund operations,
also said it would start taking on triple-B rated bonds from Dec.
9, which could increase corporate bonds held as collateral at the
BOJ by around 2 trillion yen.

With that, the new measures brought to 5.5 trillion yen ($59
billion) the amount the BOJ could commit to such funding
programmes.

MORE NEEDED

While economists generally welcomed the decision, some said
the BOJ could be forced to do more as Japan's economic downturn
looks set to deepen.

"Technically, the new lending facility should be taken as a
back-up tool, as this instrument itself is not capable of
channeling funds directly to non-financial firms but can relieve
the burden of balance sheet problems at banks only temporarily,"
said Yoshihiro Nozoe, senior economist at Okasan Securities.

"If the government and the BOJ want to prop up lending to
firms facing funding difficulty, they should consider outright
buying of commercial paper and straight bonds held by financial
institutions, which is the only way of stripping off debts from
balance sheet of financial institutions, transferring related
risk to other entities and creating some room for new lending."

Japan has been relatively unscathed by the global credit
crisis but the fallout has spread recently with investors
shunning credit products, forcing companies to turn to bank loans
as rates on commercial paper have jumped.

While Shirakawa has acknowledged a sharp deterioration in
credit conditions, the BOJ stayed away from measures as dramatic
as those implemented by the Federal Reserve, such as buying
commercial paper outright.

MORE GLOOM

The Fed already pumps money directly into specific markets,
such as those that commercial paper, short-term debt companies
use to finance day-to-day operations, and its chairman has
signalled more steps could come. [ID:nN01516053]

A Reuters poll showed on Tuesday that confidence among
Japanese manufacturers fell at its sharpest pace on record in
November. The Reuters Tankan, a monthly poll of big Japanese
firms that tracks the BOJ's closely watched quarterly tankan next
due on Dec. 15, showed business confidence had fallen sharply to
its lowest in seven years.

For a graphic of the Reuters Tankan, click:

here

Shirakawa has repeatedly expressed caution over further rate
cuts, saying that they may distort market functions, but debate
rages over whether he will hold to that stance.

"The Bank of Japan's tankan survey will undoubtedly show
quite a sharp deterioration in business sentiment. Capital
spending is also expected to be revised down from September,"
said Naoki Iizuka, senior economist at Mizuho Securities.

"The BOJ might cut interest rates to 0.15 percent at its Dec.
18-19 meeting and even opt to return to a quantitative easing
policy early next year."
($1=93.55 Yen)
(Additional reporting by Shigeo Kodama, Tetsushi Kajimoto, Yuzo
Saeki)