Japan, BOJ pledge joint action to keep cos afloat

Marco Green
May 23, 2020

The yen strengthened a touch against the dollar after the decision, moving from around 107.71 against the greenback to around 107.56.

For now, the central bank's focus has shifted to preventing bankruptcies, saving jobs and preventing an economic recession from turning into a financial crisis.

"This was more a demonstration of the BOJ's aggressive stance rather than the lending programs themselves", said Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official.

Combined with an earlier lending program, and its buying of corporate bonds and commercial paper, the BOJ said its pandemic response measures now total ¥75 trillion.

As for the possible re-emergence of deflation, economists warned that keeping the economy on track was also an important first measure to contain that risk.

"The Bank will continue to support financing mainly of firms and to maintain stability in financial markets".

The latest lending program, due to run through March next year, won't offer direct assistance to businesses like the Fed's Main Street Lending Program.

Even if the BOJ Governor Haruhiko Kuroda has recently started following the footsteps of other major central bankers while defying negative rates, his readiness to do whatever it takes makes every BOJ meeting the key.

In an outline of the scheme released in April, the BOJ had said the new facility would offer zero-interest loans to financial institutions that boost lending to small firms by tapping government guarantee programmes. Central banks and governments in some countries simply weren't on the same page and needed a reminder of the benefits of joint action, he added.

The BOJ is set to meet again June 15-16. Any additional incentive is likely to serve as a positive surprise.Kuroda will send a strong hint that this meeting is only about the lending program if he doesn't schedule a press conference afterwards.After easing further at the past two meetings and relative calm in markets, few analysts see the need for immediate action.Some analysts are watching if the board will discuss the latest inflation and gross domestic product data.

At the BOJ's extraordinary policy meeting held on Friday, the first unscheduled meeting since November 2011, the central bank also opted to maintain its current ultra-easy monetary policy and kept its short-term interest rates at minus 0.1 percent. The planned subsidy is a departure from years of negative interest rate policy that has been criticised by some for eroding profits and discouraging lending from financial institutions.

Japanese government bonds to be purchased as needed and without a limit, though the amount of purchases remains secondary to controlling interest rates. Actual purchases vary widely from month to month, depending on market conditions.

Other reports by Click Lancashire

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