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(TOKYO) Japan's government and central bank are considering a US$110 billion scheme to buy bad loans and other financial assets from banks to ease a credit crunch gripping the country's businesses, daily Sankei Shimbun said yesterday.
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| At a juncture: Japan's economy has likely shrunk in the October-December quarter by 12.1per cent on an annualised basis, in what would be its sharpest contraction in 34 years, says Barclays Capital |
Such a scheme would come on top of Tokyo's efforts to keep the world's second-largest economy from sliding deeper into recession as the global credit crisis hurts exports and corporate funding conditions tighten.
The government and the central bank are hoping to implement the scheme by the end of March, buying various types of assets from banks including bad loans, corporate debt, stocks, commercial paper and derivatives products, the newspaper said without quoting sources.
They may buy up to 10 trillion yen (S$159.13 billion) of these assets under the scheme, said Sankei, the smallest among Japan's five major newspapers with nationwide circulation.
Japan, like the United States, is already in recession, with companies such as carmakers Toyota and Honda slashing output as customers close their wallets worldwide.
Any new asset buying scheme would probably be an expanded version of a rescue plan during Japan's financial crisis in the late 1990s, when the government bought bad loans from banks through the Deposit Insurance Corporation, a government-affiliated institution, until 2005.
An official at the Deposit Insurance Corporation told Reuters that they had no knowledge about the matter and the Bank of Japan was not immediately available for comment.
The authorities have already unveiled a series of measures to ease credit strains and rev up the economy as the fallout from the global financial turmoil spread.
The government has announced extra spending plans and its biggest ever budget for the next fiscal year, while the central bank cut interest rates to near zero and offered to temporarily buy commercial paper outright earlier this month, echoing some of the emergency steps taken by the US Federal Reserve.
Analysts, however, doubt whether buying bad debt would be as effective today as it was in the late 1990s, when Japanese banks were saddled with a huge pile of bad loans as a weak economy hurt companies, while tumbling stock prices eroded banks' balance sheets.
'I do not see this would be particularly effective as the amount of bad loans is smaller than those banks were saddled with in late 1990s,' said Hironari Nozaki, bank analyst at Nikko Citigroup.
In another development, Japan's gross domestic product has likely shrunk in the October-December quarter by 12.1 per cent on an annualised basis, in what would be its sharpest contraction in 34 years, Barclays Capital said yesterday.
Barclays downgraded its forecast for Japan's fourth-quarter GDP due to factors such as record falls in exports and industrial output in November, said Kyohei Morita, chief economist in Japan for Barclays Capital.
Data this month showed that industrial output fell 8.1 per cent in November from a month earlier, the largest fall on record, and that exports posted a record annual fall in November.
Barclays' latest forecast is for Japan's fourth-quarter real GDP to decline 3.2 per cent from the previous quarter, which would translate into an annualised fall of 12.1 per cent, Mr Morita said.
That would be the biggest contraction in GDP since a 13.1 per cent annualised drop in January-March of 1974, when Japan was reeling from the early 1970s oil shock.
The situation may be even worse now, Mr Morita said.
Japan's GDP expanded in the quarters before and after the first quarter of 1974, whereas Japan may now be facing five straight quarters of contraction because GDP is also likely to shrink in January-March and April-June of next year, Mr Morita said.
Japan's GDP fell in both the April-June and July-September quarters of this year.
'I think you can say that it is a little more severe this time around,' he said. -- Reuters
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