BoJ warns on quake impact, offers loans

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TOKYO, Apr 7 (AFP): The Bank of Japan Thursday warned of the pressures on an economy reeling from its biggest recorded earthquake, a tsunami and nuclear crisis, and unveiled a lending scheme for banks in affected areas. It left its key rate unchanged at between zero and 0.1 per cent and downgraded its view of the economy due to last month's disasters, which have plunged the nation into its worst crisis since World War II. "Japan's economy is under strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster," the central bank said. "The earthquake has sharply dampened production in some areas by damaging production facilities, disrupting the supply chain, and constraining electric power supply." In a bid to ensure financial institutions in disaster-hit areas can meet demand for post-quake reconstruction funds, the BoJ unveiled a 1.0 trillion yen ($11.7 billion) scheme offering 0.1 per cent interest one-year loans. It also said it would consider broadening the range of eligible collateral for money market operations for banks in affected regions. Chief Cabinet Secretary Yukio Edano said the government is eyeing an initial extra budget of more than four trillion yen this month to finance the first wave of reconstruction in the northeastern region, Kyodo news reported. Japan's biggest companies are still trying to gauge the full impact of the March 11 disasters which have left more than 27,000 dead or missing. The damage crippled supply chains and led to power outages that have forced the likes of Toyota, Honda and Sony to shutter plants. Output overseas has also been compromised, with a shortage of key components sending shockwaves through global markets. However, analysts saw the BoJ's move as a small step with limited economic benefits, which suggested it was holding back in anticipation of the need for more dramatic action later. "It's just a very small amount," said Christian Carrillo, senior rates strategist at Societe Generale. "It's not something that's like really expanding purchases of Japanese Government Bonds so the government could directly spend more money in the economy, and it's not clear that it can be used very quickly." BoJ governor Masaaki Shirakawa on Thursday said that a move by the bank to directly purchase JGBs would undermine confidence in the yen and push up long-term interest rates. "It is extremely important to maintain trust in the currency, both internationally and domestically," he told reporters.