Introduction of New Measures for Money Market Operations in Response to the Recent Situations in Firms' Financing Activities
(for immediate release)
November 13, 1998
Bank of Japan
The Bank of Japan has been maintaining quite accommodative monetary policy stance in order to prevent further deterioration of economic conditions.In conducting its day-to-day money market operations, the Bank of Japan, in consideration of the necessity to facilitate firms' financing activities, has been decisive in providing ample funds through several measures such as CP repo operations.However, the lending attitude of private financial institutions has generally tightened as they face a severe hardship in fund-raising and the worsening performances of borrowers.In addition, capital market participants have become more sensitive to credit risks.Therefore, borrowers will likely to encounter more difficulties in raising funds, especially toward the end of this calendar year and the end of this fiscal year (March).
In light of these situations, the Monetary Policy Meeting of the Policy Board has today, by majority vote, decided to take measures, as described below, to contribute to facilitating firms' financing activities, both in the lending market and the capital market, while maintaining the soundness of the Bank's balance sheet.
1. Expansion of CP repo operations
The Bank of Japan, in its day-to-day money market operations, will expand the size of CP repo by enlarging the scope of eligible CPs(note) and speeding up the process of eligibility evaluation.These measures will be introduced on November 16, 1998.
- Present condition:
- the maturity date of the eligible CP must be within three months from the day after purchase
- New condition:
- the maturity date of the eligible CP must be within one year from the day after purchase
2. Establishment of a temporary lending facility to support firms' financing activities
Toward the end of this calendar year and the end of this fiscal year, the Bank of Japan, with intent to encourage financial institutions to make loans to firms, will establish a new lending facility for refinancing 50% of the increase in loans provided by each financial institution during the fourth quarter of the year (October to December), when the financial institutions' lending generally shows a seasonal increase.The Bank of Japan will accept Japanese Government bonds as collateral, as well as private corporations' debt obligations which the Bank determines eligible (bills <including CPs>, corporate bonds and loans on deeds).In principle, 50% or more of the collateral must be private corporations' debt obligations and the lending term shall be set so that the maturity date is in the first month of the next fiscal year (April).The applied interest rate shall be 0.5%.This lending facility will be available by mid December for financial institutions that have increased the lending amount in October and November.
This new facility is a temporary measure designed to facilitate firms' financing activities toward the end of this calendar year and the end of this fiscal year.The Bank of Japan will immediately focus on how to implement this lending facility and announce this measure in detail, upon decision by the Policy Board, as soon as the necessary arrangements have been made.
3. Establishment of a new market operation scheme which utilizes corporate debt obligations as eligible collateral
In order to further utilize private corporations' debt obligations in its money market operations, the Bank of Japan will study the feasibility of a new operation scheme.In this scheme, the Bank will purchase bills issued by financial institutions through a bidding process against pooled collateral solely composed of corporate bonds and loans on deeds.The Bank of Japan will use this scheme as a new measure to provide funds, upon decision by the Policy Board, as soon as the necessary arrangements have been made.