–BOJ To Start New Funding Scheme To Help Address Climate Change
By Max Sato
(MaceNews) – The Bank of Japan said Friday it is maintaining its policy stance, as expected, vowing to defend the economy from the lingering impact of the pandemic.
The bank will also extend the term of its special COVID-19 fund-supplying operations by six months, again, until the end of March 2022 to encourage financial institutions to lend more to needy small businesses.
The BOJ decided to launch a new funding scheme, by year-end, to support banks that are lending to or investing in projects that are designed to address climate change issues, which it noted will have an “extremely large impact” on the economy, prices and financial conditions in the longer term.
The bank will outline the specific measures under the new scheme at its next policy meeting scheduled for July 15-16.
The central bank is unlikely to overhaul its policy framework for now after it has conducted a substantial review. In March, it added new tools and tweaked existing schemes to make its monetary easing response “more flexible and nimble.”
Policy Stance Unchanged in 7-to-1 Vote; 1 Abstention
At its two-day meeting that ended on Friday afternoon, the BOJ’s nine-member board decided in a 7-to-1 vote to maintain its current monetary easing stance under the yield curve control framework it adopted in September 2016, vowing to keep zero to negative interest rates “as long as necessary” to achieve its 2% inflation target in a stable manner.
In a rare move by any members, Takako Masai, a former private-sector banker, abstained from voting as she wished to make the “independence and fairness” of monetary policy even clearer, given that she is a candidate for a private-sector position, according to the BOJ.
Masai’s five-year term ends on June 29. She is expected to assume a director position at Tobishima Corp., a construction company, news reports have said.
Last time a BOJ board member abstained from voting at a meeting was in December 2004, when Atsushi Mizuno, who had just joined the board, refrained from endorsing the minutes of the previous policy meeting, of which he was not part, the BOJ said.
At the latest meeting, reflationist board member Goushi Kataoka, a former private-sector economist, continued dissenting at the meeting, arguing that it was “desirable to further strengthen monetary easing by lowering short-and long-term interest rates, with a view to responding to encouraging firms to make active business fixed investment for the post-COVID-19 era,” according to the BOJ.
Kataoka voted for extending the term of the special COVID-19 funding program while Masai abstained, thus the vote was 8 to 0.
Under the current framework, the BOJ has been trying to stabilize the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent through large-scale purchases of Japanese government bonds without setting an upper limit, and to keep the overnight interest rate at -0.1% by charging 0.1% interest on a part of cash reserves parked at the bank by financial institutions.
In March, the BOJ decided to make it clear that it was now allowing the 10-year yield on Japanese government bonds to fluctuate 25 basis points (0.25 percentage point) either side of the target level, which is currently around zero percent. Previously, it was believed that the bank was allowing moves of plus or minus 20 basis points around the target.
In the latest statement, which is unchanged from the one released after the previous meeting in April, the bank said it will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) “as necessary” with upper limits of about Y12 trillion and about Y180 billion, respectively, on annual paces of increase in their amounts outstanding.
The bank will also purchase CP and corporate bonds with an upper limit on the amount outstanding of about Y20 trillion in total until the end of March 2022 (extended from the end of September 2021).
BOJ To Keep Watch on Pandemic Impact
“For the time being, the bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, and also it expects short-and long-term policy interest rates to remain at their present or lower levels,” the bank said, repeating its recent statement.
In their quarterly Outlook Report issued in April, BOJ policymakers slightly raised their growth forecast for the current fiscal year ending next March and jacked up their projection for fiscal 2022. They tweaked their inflation outlook but are basically holding onto their belief that prices will eventually move upward as the economy gradually reopens.
The board projected that the core CPI would rise 1.0% in fiscal 2023 ending in March 2024, which is still far below the BOJ’s 2% target. This means Governor Haruhiko Kuroda is unlikely to hit the target during his tenure as this second five-year term ends on April 8, 2023.
Uncertain Growth, Inflation Outlook
Data released earlier Friday showed Japan faces an uphill battle to guide inflation toward its target.
Japan’s core consumer price index marked its first year-on-year gain in 14 months, up 0.1%, as higher energy costs continued to offset the impact of government-led mobile communications fee discounts, the Ministry of Internal Affairs and Communication said.
However, the growth and inflation outlook remains uncertain.
Prime Minister Yoshihide Suga’s pet project to bring down mobile data costs, and thus help increase disposable household income, is playing a part in slowing the pace of Japan’s recovery from years of deflation.
Restrictions to combat the spread of coronavirus infections caused a GDP contraction in January-March and appear to have dampened consumption in the current quarter. Consumer spending slipped in Q1 after having led a rebound in the second half of 2020 from the pandemic-triggered slump seen earlier.
The Japanese government said Thursday it was easing restrictions on economic activity in Tokyo and other prefectures, effective Sunday, but decided to retain slightly less strict COVID-19 emergency measures until July 11.
The pace of vaccinations has picked up but Japan still lags behind other major economies, keeping many people cautious about dining out, traveling and gathering. Tired of restrictions, some people are ignoring official warnings, causing small clusters of infections.
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Contact this reporter: max@macenews.com.
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