Japan sets up $12B program for Dollar loans

The Bank of Japan (8301) added a 1 trillion yen ($12 billion) program for loans denominated in U.S. dollars and is expanding its venture-capital style domestic fund by 500 billion yen. Governor Masaaki Shirakawa and his board members kept the benchmark interest rate between zero and 0.1 percent, the central bank said in a statement today. The bank left its asset purchase fund at 30 trillion yen and a credit-loan program at 35 trillion yen. The central bank’s tweaking of stimulus measures came after lawmakers within the ruling Democratic Party of Japan urged more aggressive steps to counter deflation. An expansion of the asset-purchase fund last month weakened the yen against the dollar, aiding exporters and the recovery from last year’s earthquake. The currency rose after today’s decision. “Political pressure for additional monetary easing persists,” Masayuki Kichikawa, Tokyo-based chief economist at Merrill Lynch Japan, said before today’s announcement, citing comments from Finance Minister Jun Azumi on the need for the government and the BOJ to work together to overcome deflation. Shirakawa is being summoned to the nation’s parliament more regularly this year to answer lawmakers’ questions -- appearing 11 days as of March 12, nearly half his total number of appearances last year. Next Meeting The yen rose to 81.99 per dollar as 2:40 p.m. in Tokyo from 82.39 before the decision. The benchmark 10-year bond yield was at 0.97 percent. Shirakawa ordered his staff to outline details for the dollar loan facility by the board’s next meeting on April 9-10. The extra 500 billion yen also announced today is money for growth industries. Today’s decision to leave the asset purchase and credit- loan programs unchanged was anticipated by 12 of 14 economists surveyed by Bloomberg News after the BOJ last month expanded its asset-purchase fund by 10 trillion yen. “My understanding is that there will probably be more easing ahead if the policies don’t produce results,” Katsuyuki Ishida, a vice cabinet minister who attends monetary policy meeting as a government representative, said yesterday. Political Challenge Prime Minister Yoshihiko Noda’s approval ratings have halved since he took office in September, according to poll data from public broadcaster NHK. Noda is struggling to convince lawmakers to double the sales tax to 10 percent to help contain the world’s largest public debt burden. The yen has weakened about 5 percent since last month’s policy move and is around the level where exporters say they can remain profitable. The five-year bond yield has been as low as 0.284 percent, the least since October 2010. The yen slid to an 11-month low against the dollar and stocks rose after the central bank expanded asset purchases and set a 1 percent price target on Feb.14, stepping up efforts to counter deflation and weaken a currency that reached a postwar high in October. Goldman Sachs Group Inc. and Nomura Securities Co. raised growth forecasts for Japan this month as capital investment increases because of reconstruction work after the earthquake and tsunami last March. Reconstruction Fund The government has compiled about 20 trillion yen for rebuilding after last year’s disaster left more than 19,000 dead or missing. The spending should start to lift the economy this quarter, said Takahide Kiuchi, chief economist at Nomura Securities Co. which raised its growth forecast to 2 percent in the year starting in April 1 from a previous 1.8 percent estimate. Japan’s economy is showing signs of rebounding from a contraction last quarter. Machinery orders rose a more-than-forecast 3.4 percent in January, a report showed yesterday, and industrial production and retail sales also exceeded economists’ median estimates. Toyota Motor Corp., Asia’s largest carmaker, last month raised its profit forecast. The BOJ will hold two board meetings next month, reviewing its price and economic forecasts at the second gathering. Two board members’ terms will expire.