The Bank of Japan announced Wednesday it will provide ¥150 billion in emergency funds next Monday in its first outright purchase of corporate bonds from financial institutions.
However, Miyako Suda, a member of the BOJ Policy Board, reiterated her opposition to the move Wednesday, arguing it is too early for the central bank to implement a policy that she said could damage its financial health.
The BOJ’s latest money market operation aims to facilitate corporate finance as many firms face difficulty raising operating capital in financial markets amid the global credit crunch.
The BOJ said last month it would conduct several auctions to buy up to ¥1 trillion worth of corporate bonds with a single A rating or higher and residual maturity of up to one year.
The temporary program, effective through September, is part of the BOJ’s emergency policies to encourage financial institutions to lend more to businesses.
Those policies also include the outright purchase of commercial paper, or short-term debt issued by companies, from banks and other institutions as firms rush for cash to cover the March 31 end of the current business year.
Speaking in Kyoto Prefecture, Suda, the only Policy Board member to oppose the purchasing of corporate bonds by the BOJ in its policy meeting on Feb. 19, said the measure “does not suit (the BOJ’s) needs.”
Joining a meeting of local business leaders in the prefecture, Suda underlined that purchasing corporate debt would lead to the BOJ accepting credit risks that could damage its financial health as well as the “credibility of its monetary policies.”
“If a central bank intervenes in individual financial markets too much, that may result in distorting resource allocations within the economy” as a whole, she said.
If the corporate bond market stops functioning, the BOJ could help by supplementing the functions of other debt markets, including the CP market, she added. But she did not oppose the BOJ’s earlier introduction of outright CP purchases.
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