Bank of Japan Governor Masaaki Shirakawa said companies are continuing to struggle with raising funds, fuelling speculation the central bank may respond to fresh stress in global credit markets by purchasing corporate debt.
The Nikkei business daily said the BOJ was considering buying up to 2 trillion yen ($22 billion) in commercial paper as part of a plan outlined in December to thaw the corporate financing market.
Mr Shirakawa also warned today that global growth was slowing rapidly and Japan's economic conditions were becoming increasingly severe, while the economics minister said a recovery in the key manufacturing sector was not in sight.
A seized-up commercial paper market has prompted companies to turn to banks for cash, driving up lending to a record. Now analysts say banks are nursing losses on the stock market and becoming more reluctant to lend, a view shared by Mr Shirakawa.
"Japan's financial system is stable as a whole. But sustained global market tensions are affecting financial institutions' business through share price falls and rising credit costs," he told a meeting of the bank's regional branch managers.
Mr Shirakawa said the BOJ was monitoring the way banks play their role as financial intermediaries, chanelling money deposited by savers to borrowers.
"Cutting rates further or flooding money markets with excess cash no longer seem to be the key theme for the BOJ," said Kyohei Morita, chief Japan economist at Barclays Capital.
"The BOJ's focus is clearly on easing corporate credit strains," he said, adding that the central bank may examine buying short-term corporate bonds next week when it reviews policy.
The BOJ has a two-day policy meeting ending next Thursday at which it is expected to examine further ways to aid corporate financing and map out details of its plan to buy commercial paper outright from financial institutions.
Japan, like the United States and much of Europe, is in recession, with blue-chip companies such as carmakers Toyota and Honda slashing output as customers cut back on spending worldwide.
Money market strains have escalated as worries loom that some banks around the world are ill-prepared to handle mounting credit losses in an accelerating recession.
Reuters
