BOJ keeps policy unchanged as fears of crisis seen fading

The Bank of Japan kept monetary policy unchanged Wednesday, as fears of an imminent crisis faded due to some gains in share prices.

The nine-member BOJ Policy Board decided to continue providing excess money for the economy and expanded the range of collateral eligible to provide funds to banks.

Since the beginning of March, the central bank has provided the banking system with as much short-term funding as it needs until the end of the fiscal year on March 31, even above the 10 trillion yen to 15 trillion yen it has committed to pump into commercial bank accounts at the central bank.

The flood of money has helped ease fears of sudden shifts in deposits pushing relatively stable banks to the brink of collapse, prior to the government ending its blanket bank deposit protection at the end of the month.

The BOJ further decided to expand the range of collateral it accepts for its funding to include some 20 trillion yen in loans outstanding to the government-owned Deposit Insurance Corporation and 18 trillion yen in loans to local governments.

Increasing the types of collateral it accepts is hoped to provide the banking sector with the necessary funds more smoothly.

Rating agency Standard and Poor's called the BOJ's actions ineffective in a recent report, saying that a more aggressive monetary policy as well as decisive steps to reduce banks' growing bad loans were necessary to make a sustainable recovery possible in Japan.