The Bank of Japan decided Friday to extend the deadline for its scheme to support corporate funding by six months until next March and maintained its ultraeasy monetary policy as the coronavirus pandemic drags on.

The BOJ, in a surprise move at a two-day policy meeting, decided to launch a program this year to provide funds to financial institutions for their investments or loans aimed at addressing climate change that Governor Haruhiko Kuroda said would have "an extremely large" impact on the economy. An outline of the new measure will be unveiled at the next policy meeting in July.

To keep borrowing costs low, the Japanese central bank will continue to set short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bonds at around zero percent.

It made no change to the pledge to buy exchange-traded funds when needed, with the annual upper limit set at 12 trillion yen ($109 billion).

Japan's economy faces the risk of a recession with a COVID-19 state of emergency put in place for most of the April to June period in urban areas like Tokyo and Osaka.

"It is expected to take some time for the pandemic to subside and corporate funding will likely remain under stress," Kuroda said at a post-meeting press conference, explaining the reason for the six-month extension.

Bank of Japan Governor Haruhiko Kuroda speaks at a press conference at the central bank's head office in Tokyo after a policy-setting meeting on June 18, 2021. (Pool photo) (Kyodo) ==Kyodo

The BOJ provides funds to banks that extend loans to firms struggling to cope with the COVID-19 fallout. It also buys commercial paper and corporate bonds to provide liquidity.

The BOJ stuck to its assessment that the economy remains in a "severe situation" even though it has picked up as a trend. Still, Kuroda offered a slightly more upbeat view.

"If vaccinations gather speed at this pace, it is possible that we can expect a much earlier recovery in face-to-face (services) consumption," the governor said.

The BOJ appears to be in no hurry to dial back its crisis-mode monetary stimulus as the economy remains on shaky ground and its 2 percent inflation target is still far off, in stark contrast with the United States and some European countries where concerns about inflation have grown.

The U.S. Federal Reserve signaled Wednesday it may start raising interest rates earlier than expected in 2023.

Japan's core consumer price index, excluding volatile fresh food items, rose 0.1 percent in May from a year earlier, marking the first increase in 14 months, government data showed earlier Friday, providing relief to the BOJ.

"Even if the pandemic subsides, I believe we would have to keep bold monetary easing for a while to attain the price target," Kuroda said, adding there is "nothing strange" about diverging policies among central banks depending on their respective economic and price situations.

The pandemic has moved the 2 percent target further away, prompting a fine-tuning of the BOJ's toolkit in March in preparation for longer-than-expected easing. The target is unlikely to be attained even when Kuroda's current term ends in April 2023, according to BOJ projections.

The year-on-year change in the core CPI is expected to stay around zero "in the short run" but will gradually rise thereafter, the BOJ said, while acknowledging "high uncertainties" over the consequences and the impact of the pandemic.

Climate change has become one of the key topics for central bankers as momentum is building toward decarbonization to help reduce global warming.

Japan, under Prime Minister Yoshihide Suga, has been sharpening its focus on green growth with its pledge to bring carbon dioxide emissions to net zero by 2050.

"Climate change issues could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective," Kuroda said.

Among the BOJ's global peers, the European Central Bank is strengthening its commitment to addressing climate change.

Kuroda said earlier that central banks should be flexible in designing policies toward a greener society and the BOJ would explore actions and take necessary steps on climate.