Bank of Japan unveils 33 billion dollar loan scheme

AFP - Japan's central bank on Tuesday kept its key lending rate unchanged at 0.10 percent, as widely expected, and announced details of a 3 trillion yen loan scheme to boost growth.

In a statement it said "Japan's economy shows further signs of moderate recovery", but added that raising the potential economic growth rate and productivity was its "most critical challenge".

To address this, the bank announced a temporary low-interest lending scheme, the total amount of which would not exceed 3 trillion yen (33 billion dollars.)

"Aiming to rid Japan's economy of deflation and achieve sustainable growth with price stability, the Bank has been examining ways in which it can contribute in this regard," it said in a statement.

The Bank of Japan will make low interest funds available to private banks to lend to companies which it hopes will in turn encourage firms to make longer-term business investments in a bid strengthen the economy.

The BoJ said each participating bank will be able to borrow a maximum of 150 billion yen at an interest rate equal to the central bank's key lending rate on the day of disbursement, which is currently 0.10 percent.

"As for financial institutions that utilise the measure, the Bank expects that they will utilise the fund-provisioning measure appropriately and effectively, taking it as an opportunity to expand lending and investment to businesses that will contribute to raising productivity or creating new demand," it said.

The move follows Prime Minister Naoto Kan's pledge of a fiscal policy overhaul to prioritise beating deflation and tackling the country's massive public debt, which is approaching 200 percent of gross domestic product.

Investors and households are anticipating a government announcement later this month over a long term growth strategy as well as a fiscal framework that will include debt reduction targets.