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Japanese government and BOJ vow to support virus-hit economy

Governor Kuroda aims to spur lending with 0.1% interest subsidy

(Photo by Takaki Kashiwabara)

TOKYO -- The Bank of Japan on Friday launched a 30 trillion yen ($278 billion) program to support small businesses, moving in step with Prime Minister Shinzo Abe's government to keep the sector alive amid the economic crisis sparked by the coronavirus pandemic.

In an effort to showcase their coordinated campaign, BOJ Governor Haruhiko Kuroda and Finance Minister Taro Aso appeared before the press together late Friday, in the first such move since the crisis following Britain's referendum vote to leave the European Union in 2016.

In a joint statement, the monetary and fiscal policy chiefs said that the government and the BOJ "are committed to making every effort to facilitate corporate financing and maintain stability in financial markets."

The two institutions "will work together to bring the Japanese economy back again onto a post-pandemic solid growth track," the statement said.

The joint appearance comes as Abe is set to table a second supplementary budget in as many months later in May. The relief programs are expected to include financial support for students, providing subsidies to companies to maintain jobs, as well as subsidizing rents for and injecting capital into small businesses.

Aso touted the achievements of the coordinated efforts. "The Nikkei Stock Average has overcome a steep decline and has become stable around 20,000. The yen is also stable around 107 against the dollar," he said. It is unsual for the finance minister to mention specific levels of the markets.

Under the new program, adopted at an emergency meeting of the central bank's policy board, the BOJ can lend to commercial banks without interest for up to one year if the banks make loans to small businesses. The commercial banks can receive 0.1% interest from the BOJ on the loans that they make.

For such loans to be accepted as collateral by the central bank, they have to be guaranteed by the government. The guarantee scheme is already in place as part of the government's economic relief package. The government envisions guaranteeing up to 24 trillion yen in commercial loans.

The holding of the emergency meeting was announced on Tuesday, and the results of it were in line with expectations. The financial market reaction was muted.

Still, economists welcomed the decision to hold an emergency meeting to announce the small business support program and not wait for the next scheduled meeting in June. Word of the meeting had even spurred speculation that the BOJ would introduce more policy easing.

"Commercial banks will welcome the new credit facility," said Shuichi Ohsaki, interest rate strategist at Merrill Lynch Japan Securities. "They have few investment opportunities, either in Japan or abroad, because interest rates are at rock bottom everywhere. The 0.1% subsidy from the BOJ will be very attractive for them."

Combined with two other credit facilities -- a 20 trillion yen program to purchase corporate bonds and commercial paper and a 25 trillion yen program to purchase business and household loans -- the BOJ's funding assistance for the coronavirus-hit economy now totals 75 trillion yen.

Small businesses are more vulnerable to economic shocks, owing to the lack of adequate financial buffers.

Bankruptcies have been growing, especially in such sectors as hotels and restaurants in Japan, as people are asked to stay at home and the borders are closed to many foreigners. The government and BOJ initiatives come as commercial banks have started relaxing terms on loans to existing borrowers in an effort to keep them from going under.

No other change was made to the BOJ's monetary policy Friday, with short-term interest rates kept at minus 0.1% and long-term rates at around zero.

The BOJ's next scheduled policy meeting is slated for June 15 and June 16. At the previous meeting, on April 27, the central bank announced its intention to purchase Japanese government bonds "without setting an upper limit" in an effort to calm financial markets as the government launched massive relief programs through deficit spending.

Concerns have been growing about the economic impact of the state of emergency and the stay-at-home campaign since April 7. The Cabinet Office reported Monday that gross domestic product shrank by a real annualized rate of 3.4% in the January-March quarter, following the October-December fall of 7.3%.

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