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The balance of outstanding loans at Japanese banks dropped 3.6 percent in March from a year earlier for the 39th consecutive month of decline, the Bank of Japan said Wednesday.

The continued decline in the balance of outstanding loans reflects sluggish demand for operating funds by companies amid an economic standstill.

The daily lending balance for the month came to an average 458.76 trillion yen, the central bank said in a preliminary report.

Adjusted for such special factors as loan securitization, debt waivers and the allocation of loan-loss reserves, the lending balance fell 1.8 percent to 467.54 trillion yen for the 30th straight month of fall, the BOJ said.

The figures cover five categories of Japanese banks — banks with nationwide branch networks known as city banks, trust banks, long-term credit banks, regional banks and second-tier regional banks.

On an unadjusted basis, the March balance at city banks, the largest lenders, weakened 3.4 percent to 210.71 trillion yen, while that at regional banks, the second-largest, dipped 0.3 percent to 134.17 trillion yen.

The loan balance slipped 8.5 percent to 46.05 trillion yen at second-tier regional banks, 6 percent to 39.80 trillion yen at trust banks and 8.4 percent to 28.03 trillion yen at long-term credit banks.

The daily balance of real deposits and certificates of deposit at city banks, regional banks and second-tier regional banks averaged 462.32 trillion yen in March, 0.02 percent lower than a year before, the BOJ said.

The outstanding balance of commercial paper at the end of the month surged 39.2 percent to 22.61 trillion yen, the BOJ said.

The central bank also said the balance of outstanding loans at foreign banks operating in Japan rose 28.1 percent in the reporting month to 8.23 trillion yen.

M2 balance up

Japan’s key money supply indicator grew 2.6 percent in March from a year earlier, the Bank of Japan said in a preliminary report released Wednesday.

The pace of growth in the average daily balance of M2 — cash in circulation, demand deposits and quasi-money — plus certificates of deposit slowed from 2.7 percent in February, marking the first slowdown in seven months, it said.

The average daily balance of M2 plus CDs came to 640.3 trillion yen, up from 637.3 trillion yen in February, the central bank said.

The March data put the pace of growth in the balance of M2 plus CDs at 2.2 percent for fiscal 2000, the slowest growth since the 1.5 percent in fiscal 1993.

The balance of M2 plus CDs, held principally by corporations, individuals and local governments, is considered the key money supply gauge, reflecting the closest correlation to changes in economic activity.

A breakdown of the tally showed cash in circulation grew 5.2 percent to 56.1 trillion yen, down from a 6.2 percent gain in February, while money in demand-deposit and checking accounts increased 5 percent to 184.5 trillion yen, compared with 4 percent growth the previous month.

The supply of quasi-money contracted 0.5 percent to 373.9 trillion yen, following a 0.3 percent increase in February.

Quasi-money refers to time deposits and other types of savings that cannot be immediately refunded on demand, including foreign-currency deposits and nonresidents’ yen deposits.

The CD balance grew 36.4 percent to 25.8 trillion yen, following a 51.4 percent rise in February.

Broadly defined liquidity — the widest measure of money supply — grew 3.2 percent to 1.297 quadrillion yen in March, compared to a 3.4 percent rise in February.

The measurement includes postal savings, deposits at agricultural and fishery credit cooperatives, loan trusts and money trusts, bank debentures and Japanese and foreign government bonds, as well as M2 plus CDs.

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