BOJ mulling fate of special measures

The Bank of Japan began a two-day Policy Board meeting Tuesday with members expected to discuss what to do about the unconventional measures it introduced to combat the global financial crisis.

The Policy Board is expected to hold the key interest rate steady at 0.1 percent.

To support corporate financing amid the credit crunch, the BOJ introduced early this year a series of emergency programs, including the outright purchase of corporate bonds and commercial paper, or short-term corporate debt, from financial institutions.

The central bank also launched a special program to offer unlimited loans to financial institutions at a low interest rate against approved collateral.

The programs expire Sept. 30.

A measure of calm has recently been restored to financial markets amid emerging signs of economic improvement, leading to concern that maintaining such unconventional steps for an unnecessarily long time could harm the healthy interest rate-setting function of financial markets.

Given persistent concern over the prospects for the global economy, the BOJ has been considering extending the measures, but it is not yet known whether the bank will make a final decision at this meeting, sources said.

Finance Minister Kaoru Yosano said Tuesday it would be good for the central bank to maintain the policy of buying corporate bonds and commercial paper a little longer, although he acknowledged improvement in the corporate debt market environment.

Last month, BOJ Gov. Masaaki Shirakawa said the central bank will make a decision on the temporary measures before the end of September by carefully assessing the environment for corporate financing as well as financial market conditions.

In the upcoming review of the BOJ's economic and price report, it is expected to stick to the basic assessment released in April, when it said the economy would shrink around 3 percent in fiscal 2009, which ends next March, but would start to recover from the latter half of the business year, the sources said.

The BOJ is also expected to continue to warn about remaining downside risks, they said.