BOJ Expands Loan Program to Fight Deflation

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The Bank of Japan said Tuesday it will stoke the economy with an additional ¥2 trillion ($24.32 billion) in lending, following a surprise monetary easing at its last meeting as it heightens its drive to rid the economy of debilitating deflation, The Wall Street Journal reported. "We came up with the measure as part of a package" to deal with deflation along with the credit-easing move last month, BOJ Gov. Masaaki Shirakawa said at a news conference following a two-day meeting of the bank's policy board. "Persistent efforts are needed to create growth potential and thereby defeat deflation," he said, adding that the BOJ "will continue to do what it can," but that the government, financial sector and corporations must also play a part. Analysts said the remarks helped reassure the markets, showing that the BOJ appears resolved to help Japan recover from its long slump, and leaving the door open to further measures in the months ahead. In Tuesday's actions, the BOJ will boost its high-growth-sector loan program by ¥2 trillion to ¥5.5 trillion, and will make the money available for two additional years, to March 2014. The program, introduced in June 2010, provides loans to private banks for one year at a 0.1% interest rate to provide lending to 18 high-growth sectors, including renewable energy, medical treatment and nursing care. As part of the total, the BOJ also will offer loans denominated in U.S. dollars worth ¥1 trillion, using existing foreign-currency assets held by the central bank. The BOJ holds an estimated ¥4 trillion in foreign currencies, separate from the government's foreign reserves. The dollar loans are seen as helping Japanese companies with their overseas investments as they try to reap the benefits of growing overseas markets. Economists said the absence of further monetary easing was expected. At the last policy board meeting in February, the bank surprised markets by expanding its asset-purchase program by ¥10 trillion to ¥65 trillion, and moved closer to setting a clear inflation target of 1%. Read more. (Subscription required.)