Lending by Japanese banks fell 4.6 percent in February from a year earlier, down for the 50th month in a row, the Bank of Japan said Friday.

The average daily lending balance for the month came to 437.32 trillion yen, the central bank said in a preliminary report.

The drop reflects weak fund demand by businesses for new investment amid the prolonged economic slump, as well as banks' reluctance to lend as they are still burdened with bad loans.

When adjusted for factors including loan securitization, exchange-rate fluctuations and the allocation of loan-loss reserves, the balance fell 2.2 percent to 448.05 trillion yen, down for the 41st straight month of decline, the BOJ said.

The figures cover five categories of Japanese banks -- institutions 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 February balance at city banks, the largest lenders, fell 5.6 percent to 198.51 trillion yen, while that at regional banks, the second-largest lenders, slipped 0.5 percent to 132.39 trillion yen.

The loan balance fell 5.9 percent to 43.96 trillion yen at second-tier regional banks, 6.1 percent to 37.46 trillion yen at trust banks, and 11.3 percent to 25.02 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 rose 2 percent to an average 468.69 trillion yen in February, the BOJ said.

The outstanding balance of commercial paper at the end of the month rose 11.4 percent to 21.75 trillion yen.

Wholesale prices fall

Domestic wholesale prices in Japan dropped 1.3 percent in February from a year earlier for the 17th consecutive month of decline, the Bank of Japan said Friday.

The domestic wholesale price index stood at 94.5 against the base of 100 for 1995, but the index was up 0.1 percent from January for the first month-to-month increase since last July.

Prices of chemical products slipped 0.2 percent from January and those of electronics products fell 0.1 percent.

Prices rose 2.3 percent for petroleum and coal products, 1.3 percent for nonferrous metals and 1.1 percent for farm and fisheries products for consumption.

Export prices, measured in yen terms, rose 5 percent from a year earlier and 0.3 percent from January due to a decline in the yen's value against the dollar.

Money supply rises

Japan's key money supply indicator rose 3.7 percent in February from a year earlier due to the Bank of Japan's enhanced quantitative monetary easing policy, the central bank said Friday in a preliminary report.

The increase in the average daily balance of M2 -- cash in circulation, demand deposits and quasi-money -- plus certificates of deposit, was the biggest since July 1997.

The average daily balance came to 659.6 trillion yen, compared with a revised 663.2 trillion yen for January, the BOJ said.

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

A breakdown of the index shows that cash in circulation increased 10.6 percent to 61.4 trillion yen, compared with a revised 8.3 percent gain in January.

The balance of M1, or cash in circulation plus money in demand-deposit and checking accounts, climbed a sharp 19.4 percent to 277.5 trillion yen, up from a revised 15.8 percent increase the previous month.

In contrast, the balance of quasi-money dropped by a record 6.4 percent to 356.7 trillion yen, following the previous record fall of 5.6 percent in January. Quasi-money refers to time deposits and other types of savings that cannot be immediately refunded for cash at banks, including foreign-currency deposits and nonresidents' yen deposits.

The balance of time deposits has fallen in recent months in step with an increase in the balance of demand deposits, as people prepare for the April 1 abolition of the government's full deposit refund guarantee for time deposits.

The government is to impose a per-depositor limit of 10 million yen on the per-bank sum of deposits that the state is legally required to reimburse in the event of a bank failure. The new scheme goes into effect in April for time deposits and on April 1, 2003, for ordinary deposits.