World Business

BOJ to provide one-year loans to tackle deflation

(Agencies)
Updated: 2010-05-21 15:26

The Bank of Japan said it will provide one-year loans to banks to encourage lending and defeat deflation, and raised its assessment of the export-led recovery.

The central bank said it will offer the loans at the same rate as the benchmark overnight rate, which Governor Masaaki Shirakawa's board left at 0.1 percent today. The economy is "starting to recover moderately, induced by improvement in overseas economic conditions," it said in a statement.

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The announcement came after Japanese stocks tumbled, joining a worldwide rout amid concern that Europe's debt crisis will derail the global economic revival. Prime Minister Yukio Hatoyama's government, seeking to tame record public debt, may intensify pressure on the bank to shore up the economy ahead of a July election.

"The new loan program, an extraordinary step for a central bank, seems to be Shirakawa's response to political calls on the bank to ease policy," Mari Iwashita, chief market economist at Nikko Cordial Securities Inc in Tokyo, said before the announcement. "There is no change to the bank's commitment to persistently provide an accommodative monetary environment."

The Nikkei 225 Stock Average dropped 2.4 percent to 9,793.25 at 1:29 pm in Tokyo, extending its loss over the past month to 12 percent. The yen fell 1.8 percent to 114.04 per euro after reaching an eight-year high yesterday. Japan's currency also slid 0.6 percent to 90.23 against the dollar.