Bank lending grew at the slowest pace in 16 months in July, as companies used profits or sold bonds to raise funds rather than borrow from banks.
Loans excluding trusts rose 0.3 percent from a year earlier in July, slowing from 0.7 percent in June, the Bank of Japan said Wednesday. Lending adjusted for currency fluctuations, bad-loan writeoffs and securitizations grew 1.1 percent from 1.6 percent in June.
Growth in borrowing has slowed since peaking at 2.2 percent in July 2006, the same month the central bank ended its five-year policy of keeping rates near zero. Cash-rich firms like Toyota Motor Corp. are using their own funds for investment.
"You've got a corporate sector that's flush with cash, doing well and doesn't feel inclined to borrow," said David Threadgold, an analyst with Fox-Pitt Kelton Asia Ltd. in Tokyo.
Lending by Japan's 10 city banks, including units of the nation's two largest banks, Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., contracted 1.0 percent, the fourth-straight month of declines.
"Uncertainly with regard to the future has increased," said Michio Kitahara, an associate director general at the central bank's bank surveillance department. Large companies are taking a more "cautious approach" to capital expenditures, hurting city bank lending, he said.