Published: Friday October 30, 2009 MYT 3:25:00 PM
Updated: Friday October 30, 2009 MYT 3:38:34 PM

Japan central bank to end corporate debt buying

TOKYO: Japan's central bank said it will stop buying corporate debt in December, ending some of the emergency credit measures implemented earlier this year as it battled recession, plunging markets and a lending freeze.

It also kept its key interest rate unchanged at 0.1 percent as widely expected.

The decision Friday by the Bank of Japan policy board was unanimous amid weak domestic demand and falling prices in the world's No. 2 economy.

Citing stabilization of financial markets, the central bank voted 7-1 to end its purchases of corporate bonds and commercial paper as scheduled in December.

However, it extended a special low-interest loan program until the end of March and will continue accepting corporate debt as collateral until the end of 2010.

"Japan's financial environment, with some lingering severity, has been increasingly showing signs of improvement, particularly in the CP and corporate bond markets," the central bank said in a statement.

Indeed, the worst of the global financial crisis appears to have passed, with companies indicating that they no longer face a severe credit crunch.

Although the Bank of Japan is starting to phase out its unconventional steps, it is unlikely to shift its super-low interest rate strategy anytime soon.

Despite an emerging recovery in exports, demand at home is lackluster and the job market remains weak. Prices are falling as a result, with the nation's core consumer price index down 2.3 percent in September from the previous year.

Deflation, which plagued Japan during its so-called "lost decade" of the 1990s, can hamper growth by depressing company profits and causing consumers to postpone purchases.

This can lead to production and wage cuts, as well as increase debt burdens.

"The bottom line of the BOJ's policy is that, while ending the unconventional measures which reflect the recovery of markets is a rather technical issue, the BOJ will maintain its 'low for long' policy," said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co.

The central bank will offer a broader view on the economy and monetary policy when its releases its semiannual outlook report later Friday. - AP

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