Japanese bank lending fell for a 13th straight month in December, showing that the central bank's ultra-easy monetary policy has yet to spur companies to borrow more for investment and that policy will likely have to remain loose for some time.
Commercial banks have struggled to find companies willing to borrow as weak domestic demand and a murky economic outlook dampen corporate appetite to spend. The Bank of Japan has kept interest rates virtually at zero, flooded markets with extra cash and set up a pool of funds to buy assets ranging from government bonds to corporate debt.
The central bank last year also set up a loan scheme encouraging financial institutions to lend more to industries with growth potential. While the scheme has found some demand, Wednesday's data showed it has not been enough to have a significant impact on overall bank lending.
"We would expect that the steps that the BoJ has taken so far will eventually lead to an increase in lending, but it could still take some time," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"The BoJ could face some criticism of its policies because they are not leading to an immediate increase in lending. But it's difficult for the BoJ to take additional steps without more evidence of how the measures currently in place are working." The balance of outstanding loans by Japanese banks fell 1.9 percent in December from a year earlier, following a 2.0 percent decline in November, BoJ data showed on Wednesday.
While there was decent corporate demand for funds for bonus payments and year-end settlements, that did not lead to growth in bank lending as companies already have abundant cash flow, a BoJ official told a briefing.
Bank loans fell 1.8 percent in 2010 from a year earlier, the first decline in five years, reflecting weak corporate fund demand, he said. Japan's economy is expected to have contracted slightly in the final quarter of last year mainly due to slowing overseas growth and the impact of a September expiry of government incentives for purchases of low-emission cars.
Analysts expect economic growth to pick up this year with support from exports to fast-growing Asia, but only modestly, keeping the central bank under pressure to maintain its easy monetary policy. Separate data released by the finance ministry showed Japan's current account surplus fell a bigger-than-expected 15.7 percent in November from a year earlier, marking the first annual decline in three months.
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