Tokyo, April 11 (Bloomberg) -- Japan's main measure of moneysupply fell 0.4 percent in March from February and is not expectedto gain pace as the need for banks to write off bad loans curtailstheir ability to lend. Cash in circulation, regular bank deposits and certificates of depositfell at an annual rate of 0.4 percent last month after rising at a 6.1percent pace in February. From a year earlier, money supply rose2.6 percent, falling short of the 2.8 percent median forecast amongeconomists surveyed by Bloomberg News. ``Slow growth in money supply will continue for the time being ascompanies are busy writing off their debts and aren't borrowing frombanks,'' said Yasukazu Shimizu, an economist at Aozora ResearchInstitute Ltd. The government last week gave Japan's biggest banks two years towrite off an estimated 13 trillion yen ($104.7 billion) of their worstloans. The burden of carrying bad loans is forcing banks to curtaillending, starving the economy of the fresh money it needs to grow. Demand for loans also is weak -- bank lending fell for a 39th monthin March -- because profitable companies are using their ownmoney, or tapping bond markets, to fund investment, while weakcompanies are still paying off debts after having borrowed trillions ofyen during the so-called bubble economy of the late 1980s.
Bank Lending Falls
Money supply rose 2.6 percent in the three months ended March31, better than the central bank's forecast of a 2 percent increase.Still, for the fiscal year ended March 31, it rose only 2.2 percent,compared with a 3.2 percent gain for the previous fiscal year. Broad liquidity, which includes postal savings, government andoverseas bonds and other trust accounts, rose 1.9 percent in Marchfrom February, seasonally adjusted. From a year ago, broad liquiditygrew 3.2 percent. Bank lending fell 3.6 percent in March from a year earlier, the BOJsaid in a separate report. For the year ended March 31, banklending fell 4.1 percent, the fourth straight year of declines. ``With underlying demand for credit still weak, bank lending willcontinue to decline,'' said Matthew Poggi, an economist withLehman Brothers Japan Inc., speaking before the figures werereleased. Banks wrote off 2.3 trillion yen in bad loans in the six months endedSept. 30 and probably even more in the six months ended March 31,Poggi said. The short supply of money could suppress economic activity andworsen price deflation. Japan's government downgraded itseconomic assessment for a second month last month, saying thenation is in the grip of deflation. Meanwhile, the BOJ's Tankan survey showed earlier this month thatbusiness confidence fell for the first time in more than two years ascompanies said a drop in export orders will force them to pare theirexpansion plans.