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BOJ extends emergency funds through Sept. 2021 as COVID surges

CPI's fall, largest in 10 years, is 'temporary,' Gov. Kuroda says

Bank of Japan Headquarters in Tokyo (Photo by Takaki Kashiwabara)

TOKYO -- The Bank of Japan on Friday decided to extend its emergency funding program by six months, a move in lockstep with the government's initiative to introduce a new fiscal stimulus package to accelerate the pace of economic recovery.

Emergency funding facilities were set to expire at the end of the fiscal year in March. They will now be extended through September.

The move is also in step with a highly accommodative policy stance recently reaffirmed by the BOJ's counterparts in the U.S. and Europe. The U.S. Federal Reserve said on Wednesday that it would maintain its asset purchase program until substantial progress had been made toward employment and inflation goals. The European Central Bank decided last week to expand its bond-purchase program.

Japan has been less severely affected by the coronavirus pandemic than the U.S. or Europe, but Gov. Haruhiko Kuroda stressed in a press conference that both businesses and households were likely to remain cautious, given a recent resurgence in infections in Japan, and that the pace of economic recovery would likely be slow. He also said that some businesses would continue to face funding difficulties, while also underlining the need to support efforts by businesses to adapt to the new way of doing business in the COVID era, such as a shift to digitization.

"Given that economic activity and prices are projected to remain under downward pressure for a prolonged 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 have no plan to relax our easing measures," Kuroda emphasized at the press conference.

In a two-day policy meeting, the BOJ decided to maintain its main monetary policies, including the short-term interest rate target of minus 0.1% and steering long-term rates to around zero. The BOJ also kept its pledge to buy Japanese government debt without limit.

An equity purchase program of up to 12 trillion yen ($116 billion) a year has also been kept unchanged.

The central bank says it will stick to its 2% inflation target as well as its current quantitative easing framework, saying "the bank judges there is no need to change it."

The BOJ added that it would evaluate measures taken thus far and report findings in a policy meeting set for March 18-19. Kuroda said that any changes would be to fine-tune the existing mechanism to ensure its sustainability, given the increased likelihood that the easing measures need to be sustained longer than expected.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute, says that "the BOJ's equity purchase program may come under review, as such operations are becoming difficult to justify with the stock market near a 29-year high."

Under emergency funding facilities, the BOJ has offered to purchase up to 20 trillion yen in corporate bonds and commercial paper and to provide as much as 120 trillion yen in interest-free funds for up to a year to commercial banks lending to businesses and households.

As of the end of November, the BOJ had provided 51.5 trillion yen in funds to commercial banks.

Earlier on Friday, the government reported that consumer inflation fell 0.9% in November from a year earlier, the biggest drop in more than 10 years and illustrating challenges facing Kuroda's campaign to achieve 2% inflation.

Kuroda said that the fall would likely be a "temporary" one, however, attributable to such factors as the coronavirus pandemic, weaker energy prices and discounts being offered by some hoteliers.

"Once these one-off factors disappear and the economy recovers, inflation is expected to return to positive territory," Kuroda said at the press conference. "Japan is not expected to slide back into sustained price decline, or deflation."

The government of Prime Minister Yoshihide Suga on Tuesday unveiled a third fiscal stimulus plan for the current fiscal year. The BOJ has teamed up with the government in a campaign to support the economy, providing an interest of 0.1% to banks that have lent to small businesses under a state loan guarantee scheme, for instance.

The BOJ's Tankan quarterly survey, released on Monday, showed that business confidence improved for the second straight quarter in December, but overall sentiment remains downbeat amid a resurgence of coronavirus infections in Japan. The Tankan findings have raised expectations that the BOJ was likely to maintain the emergency funding program for the time being.

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