Japan eases up on business loans

The Bank of Japan (BoJ) said after its regular meeting on Tuesday that it will expand the range of collateral that companies can use to get access to loans.

Registered financial institutions can act as conduits for loans from the BoJ to businesses, but the sheer weight of bad debts clogging the financial system has slowed lending to a crawl.

The Bank hopes that by allowing shorter-term deeds to be used as collateral the bottleneck can be eased.

"The Bank expects today's decision will make it easier for financial institutions to refinance (loans) to business firms, thereby facilitating smooth corporate financing," the BoJ said in a statement.

Limited effect

The Bank also announced that it will try to keep more money flowing through the financial system, by trying to keep up to 20 trillion yen in commercial bank reserves.

There is little else it can do to ease the lending logjam.

Interest rates are already at practically zero, which in theory ought to make it easy for companies to borrow.

But the zero rate also keeps debt-ridden firms afloat, and with tens of trillions of yen in non-performing loans on their books the banks are unwilling to loosen the purse-strings for fresh lending.

The moves may have a limited effect, however.

"The decision... is a welcome move," said Hideaki Takase, an economist at Bank of Tokyo-Mitsubishi. "But it will only have a limited impact on small businesses' funding conditions for the time being."