By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) ? The Bank of Japan expanded its special lending facility for growth industries on Tuesday, while keeping its key policy rate steady as expected and slightly tweaking upward its assessment of the country?s economy.
The central bank decided at its two-day meeting to keep its overnight call loan rate target unchanged in a range of zero to 0.1%, as widely expected, by unanimous vote.
It also slightly upgraded its economic view in the wake of the March 11 earthquake and tsunami, saying ?Japan?s economy continues to face downward pressure, mainly on the production side due to the effects of the earthquake disaster, but is showing some signs of picking up.?
It said that production and private demand have ?recently been showing some signs of picking up, with supply-side constraints starting to ease, and household and business sentiment improving somewhat.?
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Financial conditions have ?generally continued to ease,? the central bank said, although it cited weakness in the financial positions of some firms, particularly small ones, since the disaster.
The year-on-year rate of change in the consumer price index, excluding fresh food, is ?slightly positive,? and is expected to remain so, the bank?s statement said.
?Japan?s economy is expected to return to a sustainable growth path with price stability in the longer run,? it said, but added that there was a ?high degree of uncertainty about the effects of the earthquake disaster on Japan?s economy.?
More lending
The Bank of Japan said it also decided to create a new 500 billion yen ($6.23 billion) lending facility for banks, as part of an existing program to support growth industries.
The bank set up the special lending facility a year ago. It offers banks one-year loans up to ?3 trillion at rate of 0.1%, so that they in turn can lend the funds to 18 sectors believed to have high growth potential. These include medicine and renewable energy.
The existing program ?has been playing the role of a catalyst in promoting financial institutions? own initiatives,? the bank said. To encourage these initiatives, the bank ?deems it appropriate to focus on supporting their provision of equity-like funds and loans without conventional collateral or guarantees.?
The new loans announced Tuesday will be offered separately. Each bank will be able to borrow up to ?50 billion at 0.1% for up to four years.
The size of the new program is small, said Takuji Okubo, chief Japan economist at Soci?t? G?n?rale Corporate & Investment Banking. But it demonstrates the central bank?s ?persistent willingness to keep searching for ways to ease financial conditions in Japan, and should be welcome by the market,? he said in a note to clients.
BOJ Gov. Masaaki Shirakawa was slated to hold a press conference later Tuesday.
Lisa Twaronite is MarketWatch's Tokyo bureau chief.
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