TOKYO, April 10 - Lending by Japanese banks slipped in March and growth in the amount of money in the financial system slowed, highlighting the challenge facing the Bank of Japan in finding a policy to get the economy moving. Lending by the main categories of banks fell 4.4 percent from a year earlier, marking the 63rd consecutive month of decline, the Bank of Japan said on Thursday. Japan's most widely watched measure of money supply -- M2 plus certificates of deposit (CDs) -- rose 1.8 percent in March from a year earlier, the lowest growth rate since August 2000. The figures highlight one of the main problems of Japan's economy: the lack of movement of money around the financial system and into the hands of businesses and individuals, where it could be spent or invested, spurring growth.
"Bank lending continued its long-standing downtrend ... indicating that fundamental demand for credit remains weak as companies are still intent on debt reduction," JP Morgan economist Ryo Hino said in a note. Banks are reluctant to lend because they are struggling to deal with unrecoverable loans from previous lending sprees, meaning that even healthy companies wanting to expand are finding it hard to get cash. The lack of growth, in turn, keep prices falling, further pressuring company profits. The central bank has tried to push money into the system through its loose monetary policy, but as most of it is being held by banks who need it to help shore up their capital, it is not making it into the wider economy. The stalemate has brought pressure on the central bank to act from both the Japanese government and international institutions.
The International Monetary Fund, in a gloomy assessment of the Japanese economy, said on Wednesday that recent measures by the BOJ were not sufficient to turn the economy around, and urged more radical ideas such as the deliberate creation of inflation. Many in the Japanese government have also called for similar measures, as well as asking the BOJ to buy real estate and other assets. But new BOJ Governor Toshihiko Fukui has reacted cautiously, citing the risks to the financial health of the central bank of such radical measures. Instead, he offered the idea of having the bank help start up a market for asset-backed securities to provide a new source of funding for smaller companies, which have been hit harder by banks' unwillingness to lend than more creditworthy larger firms.
The plan has met with scepticism from analysts, who see it as a small response to a very large problem, though they note that it could open the way to more radical ideas in the future. "The latest initiative, while not completely worthless, only offers minimal benefits with the risk of future harm similar to the stock-buying framework," said Morgan Stanley economist Takehiro Sato in a report, referring to the central bank's other ongoing scheme to buy shares from banks.//