By Toru Fujioka Nov. 5 (Bloomberg) -- Bank of Japan board members said they needed to assure investors that interest rates would stay low even after they end emergency programs to facilitate corporate funding, minutes show. “It was most important that the bank clearly explain its basic policy stance of steadily implementing measures to maintain the accommodative financial environment,” many members said, according to the minutes of their Oct. 13-14 meeting released in Tokyo today. Governor Masaaki Shirakawa and his colleagues decided on Oct. 30 to end their programs of purchasing corporate debt in December as central banks around the world phase out emergency measures taken at the height of the financial crisis. The board also pledged to prolong its policy of holding interest rates near zero to shore up the economy as they predicted deflation will linger through the year starting April 2011. “The BOJ will continue its accommodative policy, given that the recovery is very gradual,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “The challenge for the central bank is to provide liquidity before they start to discuss raising rates.” The yen traded at 90.51 per dollar at 10:59 a.m. in Tokyo from 90.67 before the minutes were published. Fed on Hold Japanese and U.S. policy makers aren’t ready to follow counterparts from Australia, Norway and Israel in increasing borrowing costs. The Federal Reserve repeated yesterday that it will keep rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. Japan’s central bank also decided last week to extend a program of providing unlimited collateral-backed loans to banks for a final time to March 31, when companies close their books. Board member Atsushi Mizuno opposed the decision, along with the scrapping of the corporate bond purchases in December. At the earlier October meeting, a few members said “the bank, to avoid a possible misunderstanding, should carefully explain that the contraction in the size of its balance sheet did not mean a shift in its monetary easing stance,” the minutes said. Cloudy Outlook Policy makers agreed that while “Japan’s economic conditions were likely to improve gradually,” uncertainty over the outlook remained “significant.” Shirakawa has since become more upbeat, saying yesterday that a recovery in emerging economies has reduced “downside” risks for the world’s second-largest economy. “Risks have been becoming balanced, compared with a situation in early spring when risks were generally tilted downside,” Shirakawa said at an economic forum in Tokyo. Board members last week forecast the economy will expand 1.2 percent in the year starting April 1 and 2.1 percent in the following 12 months after contracting 3.2 percent this fiscal year. They also predicted consumer prices excluding fresh food will fall 1.5 percent in the current fiscal year, 0.8 percent next year and 0.4 percent in the period ending March 2012. It will “take some time for the economy to fully return to a growth path,” Shirakawa said yesterday. “The bank will maintain the extremely accommodative financial environment.” ‘Small Risk’ He also said it’s “unlikely that the decline in prices will induce downward pressure on economic activity.” A member at the Oct. 13-14 meeting said there was “only a small risk” that a decline in prices would drag on the economy. Vice Finance Minister Naoki Minezaki said today that the government and central bank need a forum to discuss the threat on the economy posed by deflation. A government Cabinet Office official attending the meeting urged the central bank to “pay due attention to the risk of deflation and continue to support the economy through the conduct of monetary policy.” The central bank should “take appropriate measures” to help companies get access to financing because they “continued to face a severe business environment,” the official said, according to the minutes. Some analysts including Kumano at Dai-Ichi Life have said the central bank held off making a decision about the fate of its corporate funding programs at the earlier October meeting due to government pressure. Cabinet Office and Finance Ministry officials attend Bank of Japan policy meetings without voting. A central bank policy maker said the government’s decision to freeze about 3 trillion yen ($33 billion) from this year’s extra budget “might adversely affect the economy, at least in the short run,” the minutes showed. The Democratic Party of Japan-led government, which took power in September, plans to redirect the money from the extra budget to help pay for pledges to support households.

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