MercoPress. South Atlantic News Agency

Bank of Japan to withdraw funds’ support programs as of next March

Finance Minister Hirohisa Fujii does not agree with BOJ forecasts

A divided Bank of Japan began withdrawing from credit markets on Friday and said it would scrap all key funding support programmes by March, resisting government pressure to support corporate borrowing until the economy strengthens.

The bank extended a low-interest loans scheme by three months, but set an expiry date for March and said it would end less-used funding measures -- buying of corporate bonds and commercial paper -- in December, as expected.

The Japanese government has pressed the BOJ to continue its corporate debt buying and other measures the central bank says are no longer necessary because credit markets have largely recovered from the shock of the global financial crisis.

The government fears the central bank -- which on Friday forecast growth to bounce back over the next few years -- is too optimistic in its outlook. BOJ also forecast deflation to persist for a third year and stressed it would keep interest rates low for some time.

Central banks around the world have begun debating how and when to phase out their emergency steps to contain the damage wrought by the worst global financial crisis in decades.

BOJ board member Atsushi Mizuno who is due to leave the central bank in December, opposed ending buying of corporate bonds and low interest loans, forcing votes of 7-1 in both cases.

To fend off criticism that its moves could hurt Japan's fragile economy, the BOJ said it would continue to provide ample liquidity through its regular market operations even after the low rate loan programme expires in March. It voted unanimously to keep interest rates steady at 0.1%, as widely expected.

Some cabinet ministers have put the pressure on the BOJ, with Finance Minister Hirohisa Fujii criticising the BOJ economic assessment as too rosy. According to market experts the economic projection of 1.2% growth in the year from next April is more or less in line with forecasts by private forecasters, but its projection of 2.1% in the following year looked optimistic.

Meanwhile unemployment data showed that the rate fell to 5.3% from 5.5% in August, according to the statistics bureau in Tokyo.