Jan. 8 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said his policy board still has tools to support the economy after lowering the key interest rate to 0.1 percent last month.

“Even though interest rates are low, there is still much we can do as a central bank,” Shirakawa told lawmakers in Tokyo today. He said policy makers need to focus on maintaining financial-market stability and alleviating pressure on companies that are having trouble obtaining funds.

With interest rates close to zero, the central bank has increased its emphasis on adding funds to the financial system to halt the slide toward a deeper recession. Last month it pledged to purchase commercial paper for the first time, widened the range of collateral it accepts from lenders and increased the amount of government bonds it buys each month.

“We’ve seen a slight improvement in the issuance market since our announcement” on Dec. 19 to purchase commercial paper outright, Shirakawa said today.

Corporate borrowing costs have eased since the announcement, even though the central bank hasn’t started buying the short- term debt from financial institutions. The interest rate on three-month commercial paper issued by companies rated higher than A1 fell to 0.6 percent today from 1.025 percent on Dec. 16, according to Tokyo Tanshi Co.

The Bank of Japan also last month said it would temporarily offer unlimited loans to financial institutions in exchange for specified corporate debt. The bank said today that it will lend the money at 0.1 percent, accepting commercial paper and corporate debt as collateral. The loans will start on Jan. 14 through to April 3.

Shirakawa said last month that the central bank staff will “investigate how other corporate-financing instruments may be employed” and report their findings to the policy board “as swiftly as possible.”

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

Last Updated: January 7, 2009 21:51 EST