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TOKYO, Dec 16, 2008 (AFP) - Japan's central bank came under pressure from the government Tuesday to take fresh steps to revive Asia's biggest economy, which is slipping deeper into recession.
"Nobody denies the Japanese economy is sagging," Finance Minister Shoichi Nakagawa said, adding that it was the Bank of Japan's duty to cooperate with the government on steering the country through the financial crisis.
"It is a big responsibility for the BoJ to avoid" a further deterioration in the economy, he told reporters, without saying what steps the government would like the central bank to take.
The BoJ has cut interest rates to 0.3 percent and pumped huge amounts of cash into the financial system since the global credit crunch erupted.
There is speculation that BoJ policymakers, who are due to start a two-day meeting on Thursday, may even cut borrowing costs to close to zero at some point as the recession worsens.
"The climate for fund raising is deteriorating in markets," BoJ governor Masaaki Shirakawa told a parliamentary committee Tuesday.
"There are fears that downward pressure on the real economy will intensify if there is a further worsening of the financial environment."
Japan's central bank has independence in setting interest rates, but it has frequently come under pressure from the government to pursue policies that would help the economy to recover from its long slump.
Prime Minister Taro Aso on Friday urged the BoJ to carry out fresh measures to keep credit flowing through the financial crisis, as he unveiled a 255-billion-dollar economic stimulus package.
Fiscal and economic policy minister Kaoru Yosano said Tuesday that Aso had "sent a certain message and expectations to the central bank" at his press conference last week.
But he added that it was "up to the BoJ's own judgment how it will respond to that."
The bank is reportedly considering additional measures to help companies raise funds, including purchasing commercial papers issued by corporations.
The BoJ may also buy more long-term Japanese government bonds and expand the types of collateral it accepts when making loans to commercial banks, the Nikkei economic daily said.
The central bank reported Monday that business confidence among major Japanese manufacturers suffered the steepest plunge in three decades.
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