Japan’s central bank yesterday unveiled details of a new US$33 billion low-interest lending scheme intended to fuel economic growth and fight deflation.
The plan accompanied a decision by the Bank of Japan (BOJ) 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 BOJ has not touched the rate since December 2008.
The bank cited robust overseas demand for helping the world’s second-biggest economy continue a moderate recovery. Exports and output are up, and corporate capital investment is climbing. Government stimulus measures are also driving domestic demand.
The jobs and wages situation “remained severe, but the degree of severity has ease somewhat,” the BOJ said. It pledged to keep monetary policy “extremely accommodative” to fight deflation and foster sustainable growth.
Still, the 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 BOJ 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, it said.
Through the lending facility, commercial banks will have access to a total ¥3 trillion (US$32.8 billion). Approved banks will be able to borrow up to ¥150 billion each for up to four years at an annual interest rate of 0.1 percent.The BOJ aims to start the program by the end of August.
The bank’s latest move met with skepticism among economists, who question whether companies 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.
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