/www.bloomberg.com/ By Mayumi Otsuma
(Bloomberg) -- Bank of Japan policymakers decided to refrain from pumping more cash into the world's second- largest economy as they wait for evidence the government is doing its part to prevent a return to recession.
At their monthly meeting, central bank Governor Masaru Hayami and his eight policy-making colleagues decided to keep monthly purchases of government bonds from lenders unchanged at 1.2 trillion yen ($9.9 billion). They also decided to keep the 20 trillion yen upper limit on reserves made available to lenders.
At their last two meetings, board members pumped more money into the economy while keeping interest rates near zero in an effort to stop four years of falling prices. Adding more money probably won't help the economy until the government moves to clean up 52.4 trillion yen of bad loans at banks, economists said.
``As long as Japanese banks are wounded with bad loans, money won't properly flow through the economy,'' said Kazuhiko Ogata, a senior economist at HSBC Securities Japan Ltd.
The decision to keep policy unchanged was unanimous, the central bank said.
The No. 244 bond, which carries a 1 percent coupon and matures in 2012, rose 0.046 to 100.410 as of 1:48 p.m. in Tokyo. Its yield fell half a basis point to 0.955 percent, the lowest since Nov. 14. A basis point is 0.01 percentage point.
The central bank today broadened the range of securities it accepts as collateral from lenders in its daily money-market operations. It said it would accept, through March 2005, asset- back commercial paper issued by companies and guaranteed by commercial banks.
``With these measures, the Bank of Japan hopes to smooth out corporate borrowing and help to nurture the market for asset- backed commercial paper,'' the bank said in a statement.
Budget
Policy makers met as the government prepared to outline a budget Friday for the fiscal year starting April 1. Koizumi's coalition parties decided last week to cut taxes by up to 1.8 trillion yen -- too little to help the 538 trillion-yen economy, economists said.
Prime Minister Junichiro Koizumi has said he wants to avoid any increase in spending next year to stop the expansion of the national debt, which is approaching 140 percent of gross domestic product, the highest in the industrialized world.
Japan's economic growth slowed to 0.8 percent in the third quarter from 0.9 percent in the second, and it's probably falling further as a slide in exports prompts companies to cut spending and jobs, economists said.
Bad loans at banks such as Mizuho Holdings Inc. and UFJ Holdings Inc. have contributed to a six-year slide in lending, suffocating economic growth, economists said. Banks are worried that lending money will only add to the mountain of bad debt and prefer to invest their cash in government bonds.
``The bank will continue to closely watch the movement of corporate borrowing activities, including the impact from the accelerated bad-loan disposals,'' the BOJ said in its statement.