TOKYO (MNI) – The Bank of Japan sounded slightly more positive
about the effects of its very stimulative credit policy on Thursday, a
day after its board decided to continue fighting deflation with a
practically zero interest rate and ample liquidity injections.

“Issuing conditions for CP (commercial paper) and corporate bonds
have remained favorable, and even those for low-rated corporate bonds
have shown signs of improvement,” the BOJ said in its monthly economic
report for April.

In March, the bank said, “Issuing conditions for CP and corporate
bonds have remained favorable, except for low-rated corporate bonds.”

The BOJ on Wednesday modified its assessment of the overall
financial environment in Japan, saying, “Financial conditions, with some
lingering severity, have shown increasing signs of easing.”

It was more upbeat than its statement in March: “The financial
environment, with some lingering severity, has continued to show signs
of improvement.”

The BOJ is still monitoring whether the stimulative effects of its
rate cuts in late 2008 and a series of fund injections to cope with the
global financial crisis since then have filtered through to wide areas
of the economy.

Therefore, it maintained its assessment of the effects of the
monetary policy action in the face of falling consumer prices, which
would push up borrowing costs in inflation adjusted terms.

The BOJ said that “the stimulative effects from low interest rates
are still partly constrained, but the degree of constraint has decreased
mainly due to the improvement in corporate profits.”

The bank also left its assessment of consumer prices: “The
year-on-year pace of decline in consumer prices is likely to moderate as
a trend as the aggregate supply and demand balance improves gradually.”

After a two-day policy-setting meeting on Wednesday, the BOJ said
its policy board voted unanimously to maintain the target for the
overnight lending rate among commercial banks at practically zero, at
0.1%, the lowest possible level without hurting market functions.

The BOJ didn’t exactly revise up its view on the economy but
changed its wording slightly to show that the improvement is persistent,
thanks to a recovering demand for Japanese goods.

“Japan’s economy has been picking up mainly due to improvement in
overseas economic conditions and to various policy measures,” the bank
said in a post-meeting statement on Wednesday.

BOJ Governor Masaaki Shirakawa stressed this point at a news
conference on the same day: “Japan’s economy is moving in a better
direction.”

In March, the BOJ said, “Japan’s economy is picking up mainly due
to various measures taken at home and abroad.”

Meanwhile, the central bank maintained its cautious view on private
demand, repeating that “there is not yet sufficient momentum to support
a self-sustaining recovery in domestic private demand.”

Looking ahead, the BOJ also repeated, “Japan’s economic conditions
are likely to continue improving, although the pace of improvement is
likely to remain moderate for the time being.”

Other details from the latest monthly report follow, with quotes
from the previous month in parenthesis.

Exports and production have been increasing (vs. have been
increasing).

Business fixed investment is leveling out. (vs. is leveling out on
the whole).

Private consumption is picking up mainly due to policy measures
(vs. is picking up mainly due to policy measures).

Public investment is declining (vs. is declining).

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MMJBJ$,MAJDS$,MT$$$$]