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BOJ to offer zero-interest funds to finance climate change loans
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he Bank of Japan (BOJ) said on Friday it will offer zero-interest funds to help financial institutions with their own push to address climate change that could threaten economic growth and financial stability, joining other central banks increasingly committed to the global challenge.
The outline of the new funding program to be launched later this year was unveiled after a two-day policy meeting at which the BOJ, as widely expected, maintained its ultraeasy monetary policy to buttress a fragile economic recovery. It slightly trimmed its growth outlook for the Japanese economy to 3.8 percent from a 4.0 percent increase projected earlier.
The Japanese central bank stuck to its program to keep borrowing costs low for companies and households by setting short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields around zero percent.
Under the new climate-related program, the BOJ will offer one-year, zero-interest funds to financial institutions for their loans and investments in such products as green bonds to tackle climate change. Rollovers will be allowed for an unlimited number of times under the scheme that will be effective until March 2031.
A growing number of central banks have become keenly aware of the need to address climate change but they differ on how far they want to get involved.
The European Central Bank and the Bank of England are seeking to factor climate change considerations into policy but the United States Federal Reserve is perceived as having reservations, with Chair Jerome Powell saying climate policy is for elected officials.
In a calibrated move, the BOJ is underlining its commitment to addressing climate issues while seeking to remain neutral as a central bank by leaving it up to private-sector financial institutions to make decisions on climate-related loans and investments.
No specific incentives such as paying additional interest will be offered but private-sector banks will be given more exemptions from the negative interest rate applied to some of the funds they park at the BOJ.
The BOJ surprised analysts and financial markets last month when it announced a plan to launch the new fund-providing program. Riding the global momentum for decarbonization, Japan has pledged to attain carbon neutrality by 2050, with the government counting on green growth and Japanese megabanks halting financing for new coal-fired power plants.
In addition to the potential longer-term impact of climate change, the BOJ also assessed the near-term impact of the coronavirus pandemic as Tokyo, hit by resurging coronavirus cases, is under a fourth state of emergency, with further progress in COVID-19 vaccinations seen as the key to increased economic activity.
The growth outlook for the Japanese economy was cut for fiscal 2021 through next March but gross domestic product is expected to increase 2.7 percent in fiscal 2022, rather than the 2.4 percent expansion projected earlier. The core consumer price index (CPI) excluding volatile fresh food items, a gauge of inflation, is now forecast to rise 0.6 percent from a year earlier in fiscal 2021, instead of the earlier estimate of a 0.1 percent gain.
"Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad," the BOJ said, maintaining its assessment.
To continue to support the economy and accelerate inflation toward its 2 percent target, the BOJ will buy exchange-traded funds, or investment products comprising a variety of stocks, as needed with its annual purchase limit set at 12 trillion yen (US$109 billion).
Unlike in the US and some European nations where inflationary pressures have been building up in line with the reopening of their economies, Japan appears to be an exception. The core CPI has been hovering around zero percent and the BOJ's elusive 2 percent target is still far off.
Despite economists saying such inflation overseas is likely to be temporary, rising material costs is a source of concern for Japanese companies, which are reluctant to raise prices when consumption lacks strength.
