TOKYO—The Bank of Japan is likely to discuss a possible expansion of its lending program aimed at spurring growth in what it sees as high-potential industries when its decision-making policy board meets next week.
The nine members of the board appear to agree that the measure has encouraged private banks to channel funds to areas where high growth is seen, but some may not be convinced that the ¥3.0 trillion ($37.6 billion) scheme is enough to help the country get out of deflation, said people familiar with the BOJ's thinking.
BOJ Gov. Masaaki Shirakawa has recently stressed the need to raise Japan's growth potential, indicating he is open to further steps to reinforce the lending facility.
"The BOJ is currently considering whether there is further room to improve the scheme," Gov. Shirakawa said last month.
The governor has said it is a "longstanding challenge" for Japan to strengthen its economic foundation. Unless economic growth is achieved, it would make it difficult for Japan to pay off the staggering amount of its debt, now twice the size of its economy.
The "growth-sector" lending is separate from the measures the central bank has taken to cope with the impact of the March 11 earthquake. The BOJ has doubled the size of an asset-buying fund to mitigate investors' risk aversion, and has also set up a ¥1 trillion lending scheme to offer funds to banks in areas affected by the March disaster.
The BOJ believes it is premature to link lending for the growth sector to quake-related measures, as demand arising from reconstruction is still unknown, the people said.
The growth-sector lending program is designed to strengthen the nation's economic base by making more funds available to circulate to the corporate sector, especially smaller companies that are often locked out of the bank loan market, despite the massive liquidity in the banking sector.
However, some BOJ officials are cautious about merely increasing the size of the program due to concerns that the facility may have resulted in competition among financial firms to lower their lending interest rates because they can get funds from the central bank at an ultra-low rate of 0.1%, the people said.
The BOJ has also acknowledged that such lending to companies, even if they are made via private banks, isn't a task for a central bank.
Policy board member Seiji Nakamura said at a news conference last week that while he doesn't oppose expanding the facility, the central bank should examine whether it has been effective in its goal of raising the nation's growth potential.
"If you think of the purpose of the program, reaching the upper limit doesn't necessarily mean further increases in the size, and the facility isn't designed that way," he added.
Last June, the BOJ introduced the special lending facility, which provides up to ¥3 trillion in loans to private banks for one year at a 0.1% interest rate, specifically to lend to 18 high-growth sectors such as renewable energy, medicine and nursing, and investment in Asia. Banks are allowed to roll over the loans up to three times.
The BOJ has already loaned an estimated ¥2.94 trillion to 142 financial institutions.
Write to Tatsuo Ito at tatsuo.ito@dowjones.com and Megumi Fujikawa at megumi.fujikawa@dowjones.com
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