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The Bank of Japan's board members said that the global financial markets remain at risk amidst uncertain conditions, minutes from the October 30 monetary policy meeting revealed on Thursday.
The board added that the recovery for the U.S. economy is likely to lag behind the rest of the world, reiterating the need to take appropriate and flexible steps in a timely fashion.
"The Bank will maintain the extremely accommodative financial environment for some time by holding interest rates at their current low levels and providing ample funds sufficient to meet demand in financial markets," the minutes said.
At the meeting, the board unanimously decided to maintain the uncollateralized overnight call rate at 0.1 percent, as expected. Also, the board decided to stop outright purchases of commercial papers and corporate bonds at the end of 2009 as the central bank's assessment showed a marked improvement in conditions.
"Japan's financial environment, with some lingering severity, has been increasingly showing signs of improvement, particularly in the CP and corporate bond markets," the minutes said. "Going forward, in order to ensure financial market stability and thereby facilitate corporate financing, it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets."
Special funds-supplying operations to facilitate corporate financing will remain in effect until the end of March 2010, in order to ensure financial market stability toward the end of the fiscal year, and will expire. From April 2010 onward, the bank will be prepared to provide ample liquidity mainly through funds-supplying operations against pooled collateral, which accept a wider range of collateral.
Outright purchases of CP and corporate bonds will expire at the end of 2009 as scheduled, given that issuing conditions in the CP and corporate bond markets have been improving markedly and thus the purpose of the purchases to restore market functioning has been achieved.
Expansion in the range of corporate debt and asset-backed commercial paper eligible as collateral will remain in effect until the end of 2010, given that it is serving an important role in facilitating corporate financing.
The complementary deposit facility will remain in effect for the time being, from a viewpoint of ensuring smooth conduct of money market operations while providing ample funds sufficient to meet liquidity demand in financial markets.
The bank cut rates in December by 20 basis points to the current level - marking the first easing October 31, when the bank lowered rates by 20 basis points from 0.50 percent. That rate cut was the bank's first in seven years, and it snapped a strong of 22 consecutive meetings of keeping the rates on hold. The BoJ had kept rates unchanged since a 0.25 percent increase in February 2007.
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