Japan's central bank kicked off a two-day meeting yesterday to discuss whether to end emergency measures aimed at keeping credit flowing to cash-strapped companies during the economic slump.
The Bank of Japan has been fighting the fall-out from the global economic downturn with super-low interest rates and purchases of corporate debt.
Some of its emergency steps are due to expire at the end of the year and markets are waiting to see whether the Bank will extend them.
Japan's Financial Services Minister Shizuka Kamei has accused the BoJ of "talking in its sleep" with its remarks suggesting that the emergency measures may be withdrawn. But analysts expect the Bank of ignore the political pressure, noting that few companies are currently taking advantage of the scheme anyway.
The Bank looks likely to end out-right purchases of corporate debt at the end of December, though an announcement may not come until its October 30 meeting, said JP Morgan Securities economist Masamichi Adachi.
"Regardless of when the decision is made, the BoJ probably will communicate that this is not the first step of tightening, but just the withdrawal of an emergency measure," he wrote in a note.
One BoJ board member, Miyako Suda, said last month that the need for the steps to support corporate financing was decreasing as the global financial crisis abated.
Analysts agree that the worst of the credit crunch appears to be over.
"Arguably, the crisis point for corporate funding, which is the target of the BoJ's extraordinary measures, has passed," said Naomi Fink, an investment strategist at Bank of Tokyo-Mitsubishi UFJ.
The Bank's policy committee is widely expected to leave its key interest rate on hold at 0.1 per cent when it announced its decision on Wednesday.
Japan's economy returned to positive growth in April-June, limping out of a year-long recession, but high unemployment, weak consumer spending and stubborn deflation are seen as posing risks to the recovery.
Tuesday, October 13, 2009
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