Japan central bank expands lending program

June 14, 2011 - 1:29 AM

TOKYO (AP) — Japan's central bank kept its key interest rate unchanged at virtually zero and expanded a lending program to bolster the disaster-hit economy.

The Bank of Japan's nine-member policy board voted unanimously Tuesday to leave the overnight call rate target at zero to 0.1 percent. The decision was widely expected.

"Regarding risks to the economic outlook, there is a high degree of uncertainty about the effects of the earthquake disaster on Japan's economy," the board said in its statement.

Japan's economy was hit hard by the March 11 earthquake and tsunami, which damaged factories, wiped out large swaths of the northeast coast and triggered the worst nuclear power accident in Japanese history. Manufacturers struggled with parts shortages, and consumer spending tumbled.

The impact sent the world's No. 3 economy back into recession in the January-March quarter, with gross domestic product contracting at an annualized rate of 3.5 percent.

To support recovery, the board decided to offer commercial banks 500 billion yen ($6.2 billion) in new credit as part of a measure introduced last year to fuel economic growth.

The low-interest lending facility is designed to encourage private banks to lend money to businesses in growth sectors such as environment, energy, elderly care and tourism. Under the expansion announced Tuesday, the facility now includes equity investments and loans without real estate collateral.

The central bank said Japan's economy is "likely to continue facing downward pressure for the time being, mainly on the production side." But it upgraded its assessment slightly by adding that the economy is "showing some signs of picking up."

Production is likely to regain traction as supply constraints ease, and the economy is expected to return to a moderate recovery path in the second half of this fiscal year, the Bank of Japan said.