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The Bank of Japan said Tuesday it will introduce a new funding measure at the end of August to prod banks to boost loans to industries with growth potential, including environment-related firms.

The central bank also decided to keep its key interest rate unchanged at a razor-thin 0.1 percent to help ensure the economic recovery.

Under the new lending program, ¥3 trillion in loans will be provided to private banks that fund projects in industries with growth potential for one year at an interest rate of 0.1 percent a year, the BOJ said after concluding a two-day policy meeting.

Together with the growth strategy the government has been working to compile by the end of the month, the BOJ is hoping its new funding program will help ensure the economy achieves full-blown recovery and defeats deflation.

The BOJ will allow the loans to be rolled over three times, meaning banks will be able to borrow money for four years at the BOJ’s policy rate. Financial institutions will have to inform the BOJ of their lending plans to qualify for the lending facility by the end of March 2012, when applications for the loans are closed.

“The fund-provisioning measure aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations for economic growth,” the BOJ said.

The economy expanded a real 5.0 percent on an annualized basis for the January-March quarter on the back of the recovery in exports, but sovereign debt problems in Europe and subsequent falls in the euro against the yen have raised concern over possible adverse effects on the export-oriented economy.

The BOJ said it is necessary to heed the potential risks to the global economy and financial markets posed by fiscal problems in some European countries.

On the state of the Japanese economy, the BOJ maintained its assessment, saying it sees “further signs of a moderate recovery.”

Under the funding program, the BOJ will offer cheap loans to financial institutions lending to a variety of business areas that it sees as helping to solidify the foundations of the nation’s economy.

The business areas range from the environment and energy, nursing care and sightseeing to investment projects in Asia.

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