Daily Management Review

New Scheme For Fighting Climate Change Announced By BOJ While Retaining Steady Policy


New Scheme For Fighting Climate Change Announced By BOJ While Retaining Steady Policy
In a surprising move, the Bank of Japan unveiled a plan aimed at boosting the funding for fighting climate change. This move underscores the importance that central banks accord to the issue of climate change.
While also maintaining its huge stimulus to supporting Japan’s economic recovery stimulus for supporting the country's economic recovery from the Covid-19 hit, the BOJ also extended its deadline for asset-buying and loan programmes that it had introduced last year for channelling funds to pandemic-hit firms.
The climate change scheme is expected to be launched by the end of this year, said Japan's central bank, and added that it will also release a preliminary outline of its plan when it meets for its next policy meet in July.
"Climate change issues could exert an extremely large impact on economic activity, prices and financial conditions from a medium- to long-term perspective," the BOJ said in a statement. "Supporting private sector efforts from a central bank's standpoint will contribute to stabilising the economy in the long run," it said.
Financial aid to financial institutions that enhance loans and investment for activities targeted at combatting climate change will be provided by the central bank under the scheme, the BPJ said.
Even though the BOJ has not yet come out with the new scheme, the central bank has confirmed that the basis of the scheme would be a similar programme that offers cheap loans to financial institutions to boost the lending of such bodies towards projects in the areas that are considered to be growth industries.
As was widely expected, the target for short-term interest rates was kept by the BOJ at -0.1% and at around 0% for long-term yields, the BOJ said after the two-day meeting. The central bank also extended the September deadline for its asset-buying and loan programmes by a further six months.
In the first quarter of this year, the Japanese economy shrank an annualised 3.9% and is expected to make only a modest revival, if any at all, for the current quarter as consumption remains under pressure because of Covid-19 pandemic curbing measures.
There was a 0.1% year on year growth in May in core consumer prices which was the first year on year increase in the matrix since March of 2020. However it was also well below the 2% goal set by the BOJ.
In recent comments, officials of the BOJ have signalled the bank’s willingness and readiness to accord greater emphasis on addressing economic and financial challenges because of climate change.
"The BOJ probably wanted to move in tandem with the government, which recently flagged steps to promote green in its policy blueprint," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. "The BOJ is also jumping on the band-wagon of the rising tide among central banks towards linking monetary policy to climate change," she said.