Small businesses in Japan are having severe cash-flow difficulties, even though the Bank of Japan (BoJ) is pumping plenty of money into the banking system. This is because debt-burdened banks are following restrictive lending practices. In an unprecedented move to help those cash-strapped companies, the central bank's policy board has decided to study the feasibility of purchasing securities backed by small-business assets directly from the market.
The decision reflects an anomalous monetary situation. Short-term interest rates are virtually zero, while yields on 10-year government bonds, a benchmark for long-term interest rates, are hovering below just 1 percent. Private banks' reserves with the central bank, ready cash set aside for day-to-day banking transactions, are well beyond the upper limit of 22 trillion yen.
