Yesterday, in an unscheduled Monetary Policy Meeting, the Bank of Japan announced two emergency measures designed to facilitate bank lending to corporate borrowers and ease the growing liquidity crunch faced by both small and large Japanese firms as a result of the present economic crisis. The measures, which will be in effect through April 30, 2009, include the following:

  • Accepting lower-rated corporate debt as eligible collateral for Bank of Japan borrowings: Under the new emergency procedures, effective beginning on December 9, the Bank of Japan “will ease the criteria on credit ratings from ‘A rated or higher’ to ‘BBB-rated or higher,’” of corporate debt eligible to serve as collateral, with varying haircuts from A-rated collateral.   
  • Creating a new program that will utilize corporate debt: The Bank will create a program that, beginning at some point in January 2009, will “provide[s] funds over the fiscal year-end at an interest rate equivalent to the target for the uncollateralized overnight call rate” (currently 0.3 percent). The operation will permit commercial financial institutions “that are already counterparties in the Bank’s Funds-Supplying Operations against Pooled Collateral,” to borrow unlimited funds (provided that such commercial financial institutions have enough collateral available to secure the loans requested). The loans offered under this program will each have a minimum term of three months, but a maturity date of no later than April 30, 2009.

The Bank also indicated that it would “make efforts to ensure market stability during the run-up to the calendar and fiscal year-end by conducting appropriate money market operations, utilizing the existing and newly-introduced measures.”