(Bloomberg) -- The Bank of Japan said it will stop buying corporate debt at the end of the year, as central banks around the world phase out emergency measures taken at the height of the financial crisis.
Governor Masaaki Shirakawa and his colleagues also voted to extend a program of providing unlimited collateral-backed loans to banks one last time through March 31, the central bank said in a statement in Tokyo today.
Stocks rose after reports showed the unemployment rate unexpectedly fell to a four-month low and household spending climbed, easing concern about the strength of the country’s recovery from its worst postwar recession. The bank also kept the benchmark interest rate at 0.1 percent and said it would maintain borrowing costs at “low levels” for “some time.”
“Given steady improvements in credit markets, it’s not wrong to end these finance-support measures,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo, who used to work at the central bank. Kanno added that falling prices will prompt the policy board to keep the key rate near zero for all of 2010 at least.
The yen traded at 91.08 per dollar at 2:39 p.m. in Tokyo from 91.31 before the announcement. The Nikkei 225 Stock Average climbed 1.4 percent to 10,027.87.
Diminishing Need
Shirakawa has said the need for the bank’s purchases of commercial paper and corporate bonds from lenders has diminished as companies are finding it easier to obtain credit. The programs have been in place since the bank slashed the key rate in December amid the worst global financial crisis since the 1930s. It decided in July to extend the measures to Dec. 31.
“Japan’s financial environment, with some lingering severity, has been increasingly showing signs of improvement, particularly in the CP and corporate bond market,” the central bank said. “The bank will maintain the extremely accommodative financial environment for some time by holding interest rates at their current low levels and providing ample funds sufficient to meet demand.”
In one example of a firm able to get credit, Kirin Holdings Co. yesterday raised 100 billion yen ($1.1 billion) in bonds to fund its acquisition of Australian brewer Lion Nathan Ltd., according to data compiled by Bloomberg.
Mizuno Dissents
The bank said it will scrap the limitless lending facility on March 31, when companies close their books for the fiscal year end, and that the program won’t be extended further. Board member Atsushi Mizuno opposed the decision, along with the scrapping of the corporate bond purchases in December.
“The special loan program, which provides lenders with as much cash as they need, distorts price-setting in financial markets and should be wrapped up eventually,” said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. “Postponing its expiry to the fiscal year end seems like a safe judgment.”
The policy board will release its semiannual economic outlook at 3 p.m. in Tokyo. Economists surveyed by Bloomberg News see the economy expanding about 1 percent in each of the next two years and deflation extending into the year ending March 2012. Consumer prices excluding fresh food slid 2.3 percent in September from a year ago, the government said today.
Other figures show the recovery may be gaining traction. The unemployment rate fell for a second month to 5.3 percent in September and the ratio of jobs available to applicants rose for the first time in more than two years. Industrial production climbed for a seventh month and retail sales fell at the slowest pace in 10 months, figures earlier this week showed.
Quash Speculation
The bank’s likely forecasts of prolonged deflation and tepid growth will help to quash speculation for any early rate increase, analysts said. Fifteen of 16 economists surveyed by Bloomberg News last week said the bank will hold the key rate at 0.1 percent at least through the end of 2010.
“It’s hard to expect a rate increase in Japan as long as deflation lingers,” said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. “The Bank of Japan probably won’t raise interest rates before the Fed takes action.”
Some central banks are already increasing rates. Australia this month became the first Group of 20 nation to raise rates since the height of the crisis and Norway’s central bank followed this week.
In the U.S., two-year Treasury note yields this week rose to the highest level in almost a month on speculation Federal Reserve officials will probably discuss next month how and when to signal the possibility of higher U.S. interest rates. The U.S. economy expanded for the first time in more than a year last quarter, a report showed yesterday.
To contact the reporter on this story: Mayumi Otsuma in Tokyo motsuma@bloomberg.net
Source: bloomberg
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