BOJ to mull topping up loan scheme for growth sectors

* Policy rate seen on hold, no easing steps

* Decision expected 0330-0500 GMT

* BOJ may top up growth sector loan scheme by Y1 trln

* Japan recovery forecast likely intact

By Leika Kihara

TOKYO, June 14 (Reuters) – The Bank of Japan is expected to keep monetary policy on hold but consider ways to funnel more money to up-and-coming firms on Tuesday, keeping up efforts to beat chronic ills that plague an economy hit by a devastating earthquake in March.

The central bank will examine boosting by up to 1 trillion yen ($12 billion) a 3-trillion-yen loan scheme aimed at encouraging banks to lend to industries with growth potential.

The increased amount will be set aside for banks that lend against inventory and receivables as collateral. That would give small firms that do not own property — a standard collateral for bank loans — better access to cash.

Any such move would be a long-term approach to nurture growth industries in Japan, which is suffering from an ageing population, low productivity and grinding deflation.

With no fresh signs the March quake is severely hurting business sentiment, the BOJ is widely expected to hold off on easing monetary policy further and keep interest rates at a range of zero to 0.1 percent.

The loan scheme for growth industries is the BOJ’s long-term approach to beat deflation and is separate from its asset buying programme, introduced in October 2010 as a direct, short-term monetary easing measure.

Japan is slowly emerging from its worst crisis since World War Two after a large earthquake and a tsunami slammed its northeast coast on March 11, triggering meltdowns at a nuclear power plant.

Shortages of electricity could disrupt some manufacturing activity in the summer, but companies have been making progress in restoring lost production and mending supply chains.

Encouraged by signs that manufacturers are repairing supply chains quicker than initially expected, the BOJ may issue a less pessimistic view of the economy than last month, when it said the economy was under strong downward pressure.

The recent global economic slowdown is a potential risk but not enough to alter the BOJ’s view that Japan’s economy will resume a moderate recovery by the end of this year when supply constraints ease, said sources familiar with the central bank’s thinking.

The BOJ eased monetary policy by doubling its asset buying scheme just days after the quake. It has stood pat on policy since then but has expressed its readiness to loosen further if the quake’s damage to the economy proves bigger than expected. ($1 = 80.225 Japanese Yen)