BOJ Puts Up $11.73 Billion for Rebuilding

Days after the quake, the BOJ doubled its asset-purchase program to Y10 trillion to bolster sentiment in the world's third-largest economy. It has also been aggressively providing liquidity into the money market to meet any surge in funding demand.

The Bank of Japan has announced steps to get $11.73 billion in funds to the country's earthquake-ravaged areas but remained opposed to buying bonds directly from the government to assist reconstruction.

The central bank voted unanimously to keep its overnight interest-rate target at 0.0%-0.1%. But it cut its economic assessment, given expectations that the impact of the March 11 earthquake and tsunami and subsequent nuclear crisis will be widespread.

"Japan's economy is under strong downward pressure, mainly on the production side," the bank said in the statement. "The earthquake has sharply dampened production in some areas by damaging production facilities, disrupting the supply chain and restricting electric power supply; exports and domestic private demand have been affected accordingly."

The BOJ said it will offer ¥1 trillion in one-year loans at 0.1% to financial firms with branches in affected areas, to facilitate a smooth flow of cash to the quake-hit northeast. The central bank will also consider broadening the range of financial assets it accepts as collateral in a bid to secure "sufficient financing capacity of financial institutions in disaster areas."

Details of the two measures will be decided by the next monetary policy board meeting, on April 28, when the BOJ will also release its semiannual outlook on the economy and prices.

Apparent purchase ¥100 billion in Tepco corporate bonds—the maximum amount of debt in a single company that the central bank allows itself to buy under its own program—was still small compared with an outstanding balance of around ¥5 trillion in Tepco corporate debt, most of which is held by Japanese institutional investors.

Before the quake, Tepco bonds were considered a virtual derivative of Japanese government bonds, being as the company had a solid revenue stream as the utility for the entire Tokyo area.

Debt underwriting is generally a taboo among central banks on concerns that it would appear to give governments a blank check for uncontrolled spending. Still, the idea has surfaced intermittently as Japan has lurched from crisis to crisis over the past 20 years. It is banned by law under normal circumstances but possible if approved by Parliament.

Although the central bank lowered its economic outlook in the wake of the disasters that have left more than 27,000 dead or missing, it maintained a positive outlook for the longer term. It said the economy is likely to return to "a moderate recovery path" as exports and domestic demand are expected to pick up on the back of improvement in overseas economies and post-quake reconstruction.

Governor, Mr. Shirakawa expects supply chains to be restored by June or July, though he said he isn't sure when supply shortages caused by unstable electricity supply and damages at production sites will improve.