BOJ Extends Emergency Fund Until September 2021 As COVID Rises
TOKYO – The Bank of Japan on Friday decided to extend its emergency financing program by six months, a move in line with the government’s initiative to introduce a new fiscal stimulus package to accelerate the pace of economic recovery .
The emergency financing facilities were due to expire at the end of the fiscal year in March. They will now be extended until September.
This decision is also in line with a very accommodating policy recently reaffirmed by the counterparts of the BOJ in the United States and in Europe. The U.S. Federal Reserve said on Wednesday it would maintain its asset purchase program until substantial progress was made towards employment and inflation targets. The European Central Bank decided last week to expand its bond buying program.
Japan has been less severely affected by the coronavirus pandemic than the United States or Europe, but Governor Haruhiko Kuroda stressed at a press conference that businesses and households would likely remain cautious, given a recent resurgence of infections in Japan, and that the pace of economic recovery is likely to be slow. He also said that some companies would continue to face funding difficulties, while stressing the need to support the efforts of companies to adapt to the new way of doing business in the COVID era, such as the switch to digitization.
“As economic activity and prices are expected to remain under downward pressure for an extended period due to the impact of COVID-19, the Bank will assess further effective and sustainable monetary easing,” the BOJ said in a statement.
“We do not intend to relax our easing measures,” Kuroda stressed at the press conference.
In a two-day policy meeting, the BOJ decided to maintain its main monetary policies, including the target of short-term interest rates of minus 0.1% and reducing long-term rates to around zero. . The BOJ also kept its commitment to buy unlimited Japanese government debt.
A stock purchase program of up to 12 trillion yen ($ 116 billion) per year also remained unchanged.
The central bank has said it will stick to its 2% inflation target as well as its current quantitative easing framework, saying “the bank feels there is no need to change it “.
The BOJ added that it would assess the measures taken so far and report its findings at a political meeting scheduled for March 18 and 19. Kuroda said any change would be to fine-tune the existing mechanism to ensure its sustainability, given the increased likelihood that the easing measures will need to be maintained longer than expected.
Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, said that “the BOJ’s stock purchase program could be reconsidered as such trades become difficult to justify with the stock market close to a plus. high for 29 years “.
As part of the emergency financing facilities, the BOJ has offered to buy up to 20 trillion yen of corporate bonds and commercial paper and provide up to 120 trillion yen of free funds. interest up to one year to commercial banks lending to businesses and households.
By the end of November, the BOJ had provided 51.5 trillion yen in funds to commercial banks.
Earlier on Friday, the government announced that consumer inflation fell 0.9% in November from a year earlier, the biggest drop in more than 10 years and illustrating the challenges facing the campaign of Kuroda to achieve inflation of 2%.
Kuroda said the drop would likely be “temporary,” however, attributable to factors such as the coronavirus pandemic, falling energy prices and discounts offered by some hoteliers.
“Once these one-off factors are gone and the economy recovers, inflation should return to positive territory,” Kuroda said at the press conference. “Japan should not fall back into sustained price declines or deflation.”
Prime Minister Yoshihide Suga’s government on Tuesday unveiled a third fiscal stimulus package for the current fiscal year. The BOJ has partnered with the government in a campaign to support the economy, granting 0.1% interest to banks that have lent to small businesses under a state loan guarantee program , for example.
The BOJ’s quarterly Tankan survey, released on Monday, showed business confidence improved for the second consecutive quarter in December, but general sentiment remains pessimistic amid a resurgence of coronavirus infections in Japan. Tankan’s findings raised hopes that the BOJ would likely maintain the emergency funding program for now.