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Japan's economic conditions are likely to continue deteriorating for the time being, and financial conditions in Japan have become tighter, the latest Bank of Japan report notes.
The overnight call rate has been at an extremely low level, but the stimulative effects from this have become increasingly limited given the significant deterioration in economic activity, the report note.
Despite a slight decline in bank lending rates following the reduction in the policy interest rate, funding costs for firms have been more or less flat as a whole, as credit spreads on CP and corporate bonds have remained wide. The amount outstanding of CP and corporate bonds issued has been below the previous year's level, as investors have continued to be selective in their purchases of CP and corporate bonds.
The amount outstanding of bank lending, especially to large firms, has increased at a faster pace, reflecting firms' demand for securing more liquidity and compensating for the decline in the issuance of CP and corporate bonds. Despite the increase in bank lending, an increasing number of firms have reported that their financial positions are weak and lending attitudes of financial institutions are severe.