Japan to Use Forex Reserves to Ease Credit Squeeze

Japan will use some of its large foreign exchange reserves to ease a squeeze in corporate financing, the finance minister said on Tuesday, as the annual balance date looms for many companies.

Japanese firms big and small are finding it hard to borrow as banks, hit by losses on their stock holdings as the Nikkei 225 Average hangs near 26-year lows, shy away from lending, aggravating the problems the world's second-biggest economy.

The government will loan $5 billion this month from its foreign reserves to the Japan Bank for International Cooperation (JBIC), which has been charged with helping ease the pressure on Japanese companies from the global credit squeeze.

"We expect difficulties in corporate financing in Japan as well as overseas to reach their peak soon as economic difficulties deepen," Kaoru Yosano, also economics minister, told a news conference after a cabinet meeting.

A financial arm of Toyota Motor has applied for about $2 billion in loans backed by the government, as the financial crisis threatens funding at the world's top auto maker, state TV broadcaster NHK said on Tuesday.

Toyota may be the first of a series of big Japanese companies turning to state-backed financial institutions prior to the closing of books for the business year at the end of March.

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The global economic slump has virtually frozen Japanese exports and production of cars and electronics, and its economy is seen headed for its longest recession in modern times.

Company earnings have worsened as recession spreads around the world, eroding firms' credit-worthiness and raising concerns that liquidity will remain constrained into the financial year that starts on April 1.

Banks, large holders of stocks in Japan, have been forced to raise billions of dollars in new capital as their holdings slide in value, and the Bank of Japan has already launched a scheme to buy stocks directly from them.

Japan's government is also looking at expanding stock buying and taking other steps to support the share market amid growing fears for the economy as sliding stocks erode the capital of banks.

JBIC, an international arm of the state-backed Japan Finance Corporation, extends lending to Japanese companies investing abroad and is assisting them in financing amid upheavals in global financial markets.

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