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The Cathford Group Credit Inc Tokyo Loan Review Tips: BoJ may extend deadline, expand loan schemes next week

TOKYO: The Bank of Japan may next week decide to expand two loan schemes aimed at encouraging commercial banks to lend more and extend them beyond their current March expiry date, sources familiar with the central bank's thinking said.

Many BoJ officials feel that the programmes ought to be continued beyond March. But there is no consensus yet on details such as how long they should be extended for or by how much they should be increased, the sources said on condition of anonymity.

If the nine board members can reach agreement, the BOJ may announce a decision next week, the sources said.

If preparations take more time, the decision may be delayed until next month, they added.

"There seems to be decent demand among banks for the loans and if so, there is no point ending the programmes" when they expire in March, one of the sources said. Under its "quantitative and qualitative easing" programme, or QQE, the BoJ is buying government bonds and risky assets aggressively in a bid to double base money in the economy and achieve its 2 percent inflation target.

Aside from asset purchases, the BoJ has several loan programmes including one that aims to encourage banks to lend more to industries with growth potential.

Another scheme, introduced in 2012, offers cheap funds to banks that boost lending in general.

Both schemes offer banks loans for up to four years at a 0.1 percent interest rate and were expanded in February last year.

The balance of loans extended under the programmes exceeded 20 trillion yen ($171 billion) last year and reached nearly 25 trillion yen as of Jan. 10.

With the BoJ's massive bond purchases nudging yields into negative territory and crowding out investors, many BoJ officials are reluctant to expand asset purchases under QQE any time soon.

But the central bank is set to cut its consumer inflation forecasts at next week's rate review due to slumping oil prices and may come under pressure for not focusing more on the slowdown in inflation, some analysts say.

While expanding the loan schemes by definition won't be tantamount to monetary easing, it will help the BoJ fend off such criticism, said Izuru Kato, chief economist at Totan Research.

"The BoJ doesn't have many policy tools left so it may use the loan schemes to appear as if it's doing something to address the slowdown in inflation," he said.