TOKYO, April 30 - The Bank of Japan eased its monetary policy in a surprise decision on Wednesday, citing uncertainty in the global economy and a worrying fall in Tokyo share prices to two-decade lows. The central bank said it would raise the reserves target, the target amount for banks' current account deposits held at the central bank, to 22-27 trillion yen ($184-225 billion) from 17-22 trillion yen. It also vowed to provide liquidity beyond the new amount if it was needed to ensure stability in financial markets. The decision by the nine-member board was unanimous. "The stock market continues to be unstable, particularly banking shares, and we must be alert to risks of this having a negative impact on financial markets and the real economy," the BOJ said in a statement.
Economists said the easing could help soothe Japan's troubled markets, but played down the impact of the move on an economy that has remained stagnant despite a flood of funds under the BOJ's super-loose policy. "I don't think this move would have any impact on the real economy as it mostly aims for an announcement effect," said Barclays Capital chief economist Mamoru Yamazaki. "But with stocks falling so much and renewed worries about a crisis of confidence in the financial sector, it does help to do away with some negative risks." The BOJ said the Japanese economy was flat, but cited uncertainties over the European and U.S. economies and said it was concerned about the impact of the SARS virus on the rest of the Asian region.
It also said it would start to accept proof of loans to the Industrial Revitalisation Corp (IRC), a state-backed corporate rescue entity, as collateral for its own loans to banks. The plan, widely reported by media beforehand but dismissed by most economists as unlikely to have much impact, is meant to encourage banks to lend more to companies by going through the IRC, removing much of the risk of lending directly. Banks have been reluctant to lend even to healthy companies while they deal with their existing pile of bad loans. BOJ Governor Toshihiko Fukui, who took office in March amid heavy government pressure to do more to help the economy, has said one of the key tasks is getting banks lending again.//