Exclusive: BOJ considering steps to ease corporate funding strains in April - sources

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) - The Bank of Japan will discuss further steps to ease corporate funding strains at this month's rate review in order to pump more money into firms grappling with slumping sales due to the coronavirus outbreak, sources familiar with its thinking said.

While discussions are still in the initial stages, possible options on the table include further increases in purchases of corporate bonds and commercial paper (CP), and an expansion in the range of assets the central bank accepts as collateral in offering financial institutions loans, they said.

"Corporate funding conditions continue to worsen. The focus for the BOJ is still crisis response, not what measures it can take to reflate the economy," one of the sources said on condition of anonymity due to the sensitivity of the matter.

"The BOJ took steps to ease corporate funding strains in March. If further measures are necessary, they will likely be discussed at April's rate review," another source said.

A third source echoed the view, adding that pledging to buy more corporate bonds and CP purchases, or expanding the range of assets the BOJ accepts as collateral "could be among options."

Another idea being discussed internally is for the BOJ to pay financial institutions that borrow money from the central bank. This can be done by offering them loans at negative interest rates under a new lending scheme adopted in March, the sources said.

More radical monetary easing steps to spur demand and boost the economy, such as rate cuts, are less likely in April as they would run counter to government efforts to keep households home and businesses shut to contain the virus, they said.

The BOJ next meets for a rate review on April 27-28.

FUNDING STRAINS CONTINUE

The central bank eased monetary policy last month by pledging to increase buying of risky assets, including corporate bonds and CP, and create a new loan programme to assist funding of small firms hit by the health crisis.

The measures came on top of government loan programmes offering small and mid-size companies zero-interest rates, which was part of a nearly $1 trillion stimulus package unveiled last week to combat the pandemic's fallout.

Despite such measures, BOJ Governor Haruhiko Kuroda warned last week that corporate funding strains were worsening as the pandemic keeps the economic outlook "extremely uncertain."

As part of efforts to ease funding strains, the BOJ pledged in March to increase corporate bond and CP purchases by 2 trillion yen ($18.61 billion) until September.

The BOJ could top up the amount of purchases in April or extend the deadline beyond September, the sources said.

Travel bans and social distancing policies to combat the health crisis have added to woes for Japan's economy already on the cusp of recession.

Sources have told Reuters the BOJ is likely to make a rare projection this month that the world's third-largest economy will shrink in the current fiscal year that began in April, as the pandemic wreck havoc to a fragile recovery.

Japan had 7,693 cases of infections as of Tuesday morning, excluding those from a cruise ship quarantined in February, with 146 deaths, according to public broadcaster NHK.

Under a policy dubbed yield curve control, the BOJ pledges to guide short-term rates at -0.1% and long-term borrowing costs around zero. It also buys massive amounts of government bonds and risky assets to pump money into the economy.

(Reporting by Leika Kihara and Takahiko Wada; Editing by Shri Navaratnam, Kim Coghill and Simon Cameron-Moore)