The Bank of Japan is considering offering temporary loans to banks to aid companies with cash- flow shortages in the wake of the record March 11 earthquake, three people familiar with the matter said.

The plan may be presented to the central bank's board as early as this month, the people said, speaking on condition of anonymity because the discussions weren't public. BOJ Governor Masaaki Shirakawa and his colleagues are scheduled to meet on April 6-7 and on April 28.

Companies may face funding challenges as they fix damage and pay wages while production is suspended due to power cuts, particularly smaller firms with less cash on hand or lines of credit. The BOJ effort would help avoid a jump in bankruptcies amid calls from lawmakers and business leaders for the central bank to do more to support the economy after the disaster.

"With sales plunging, companies are running out of cash on hand and they are asking for loans to stay in business," said Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo. "The Bank of Japan will probably give some support to accommodate such demand."

Japan's top three commercial lenders said corporations have asked for loans totaling 2.6 trillion yen in the first two weeks after the quake, equivalent to 1.3 percent of city banks' outstanding lending. About 600 businesses have asked for advice on post-quake financing from the Chamber of Commerce in Sendai, the largest city in the northeastern region.

'Out of Cash'

"Companies are concerned about the risk of running out of cash on hand," said Masanobu Abe, deputy head of Sendai Chamber of Commerce's small business finance division, urging officials to ensure loans are made to smaller firms. "They are also worried because they can't sell products due to the breakdown in transport and they may fail to collect debt and pay salaries.

David Fuller's view Following on from intervention to weaken the yen, these are sensible policies which should help to limit layoffs and bankruptcies, and also cushion the stock market. If this is QE Japanese style, it is certainly justified by recent events.

I do not expect much repatriation of capital by the Japanese government. That would be like selling the family silver, or more likely T-bonds. That would drive up the yen which is the last thing Japan needs. Instead, it makes much more sense for the BoJ to supply the necessary liquidity, one way or another.