World Business
Japan to launch $33b low interest credit plan
(Agencies)
Updated: 2010-06-15 16:19
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TOKYO: Japan's central bank on Tuesday unveiled details of a new $33 billion low-interest lending scheme intended to fuel economic growth and fight deflation.
The plan accompanied the Bank of Japan's decision to keep its key interest rate near zero.
As widely expected, the eight-member policy board voted unanimously to leave the overnight call rate target at 0.1 percent. The bank has not touched the rate since December 2008.
It cited robust overseas demand for helping the world's second biggest economy continue a moderate recovery. Exports and production are up, and corporate capital investment is climbing. Government stimulus measures are also driving consumer demand at home.
The jobs and wages situation "remained severe, but the degree of severity has ease somewhat," the central bank said.
It pledged to keep monetary policy "extremely accommodative" to fight deflation and foster sustainable growth in the country.
Still, the central bank faced persistent political pressure to do more as prices in the country continued to fall. Deflation plagued Japan during its "Lost Decade" in the 1990s, hampering growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases.
The new credit program, first announced last month, is designed to encourage private banks to lend money to businesses in growth sectors such as environment, energy, elderly care and tourism.
"The most critical challenge the Japanese economy is currently facing is to raise the potential economic growth rate and productivity," the Bank of Japan said in its statement.
"The fund-provisioning measure aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations for economic growth" and to broadly support financial institutions' own initiatives.
Through the lending facility, commercial banks will have access to a total 3 trillion yen ($32.8 billion). Approved banks will be able to borrow up to 150 billion yen each for up to four years at an annual interest rate of 0.1 percent.
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Bank of Japan Government Masaaki Shirakawa's latest move met with skepticism among economists, who question whether companies really need more loans.
"We reiterate that we see little impact at this stage due to a lack of demand for funds and rising corporate fund surpluses," Goldman Sachs economist Chiwoong Lee said in a report.
Meanwhile, government pressure on the central bank is unlikely to fade under new Prime Minister Naoto Kan.
Kan, who served a short stint as finance minister, warned in his first address to Parliament last week that Japan could face a Greece-like crisis if the country does not shrink its swelling national debt. He also promised to work closely with the Bank of Japan to tackle deflation.