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BOJ weighs expanding its purchases of CP and corporate bonds: Central bank’s broadened safety net for large companies includes more ETF buying

  • March 13, 2020
  • , Nikkei Asian Review , 6:17 p.m.
  • English Press
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Nikkei staff writers

TOKYO — The Bank of Japan next week will consider expanding its purchases of commercial paper and corporate bonds to help large companies through the financial turmoil triggered by the new coronavirus pandemic, Nikkei has learned.

 

A monetary policy meeting will be held on Wednesday and Thursday.

 

The central bank currently has a target to maintain a commercial paper balance of 2.2 trillion yen and a corporate bond balance of 3.2 trillion yen.

 

The expansion would be designed to help larger companies as well as small and medium-size enterprises meet their funding needs.

 

The bank intends to step in with an “abundant supply of funds” so as to “secure stability in the financial market.” In addition, it aims to increase its purchases of exchange traded funds, regardless of its 6 trillion yen per year target.

 

The BOJ is also considering supplying funds to financial institutions at a lower interest rate to help SMEs resolve cash flow issues.

 

Commercial paper is a form of I owe you that big corporations sell at low interest rates to take care of overnight funding needs.

 

Demand for these and corporate bonds is currently steady, but this will change if global stocks continue their across-the-board losses.

 

Japanese companies have another concern — their large holdings of other companies’ shares, both at home and abroad. If stock markets drop to a certain level, companies will suffer impairment losses, their finances will deteriorate and their credit ratings will suffer. They will then have trouble raising funds.

 

Significant losses recorded at the end of the fiscal year through this month could lead to more stringent fundraising terms and fewer underwriters.

 

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