By Noriyuki Suzuki,
The Bank of Japan said 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 that are 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.
Governor Haruhiko Kuroda said he hopes the new program will serve as "leverage" for lenders and companies to ramp up efforts to reduce greenhouse gas emissions.
"It is going to require efforts spanning a long period and massive investments" to fight climate change, Kuroda said during a post-meeting press conference.
"From a long-term perspective, (climate change) would impact the economic structure, financial system, economic growth and prices. That's why we are doing what we can within the mandate of the Bank of Japan," Kuroda said.
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 U.S. Federal Reserve is perceived as having reservations, with Chairman 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.
Separate from the monetary policy decision, the BOJ released a climate change strategy, saying that it will buy foreign currency-denominated green bonds issued by governments and foreign entities as part of its management of foreign currency assets.
In Japan, foreign reserves, used for currency market interventions and other purposes, are managed by the Finance Ministry but partly held by the central bank.
Besides 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 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 ($109 billion).
Kuroda said economic activity is expected to remain at lower levels than before the pandemic, with the face-to-face services sector taking a hit.
Contrary to Japan, inflationary pressures are building up in the United States and some European nations where COVID-19 vaccinations progressed, and economic activity resumed.
The year-on-year change in the core CPI in Japan is expected to hover around zero percent in the short run, far from the BOJ's 2 percent target, according to the latest outlook, though Kuroda has acknowledged that there remains "high uncertainty."
Surging raw material costs are becoming a source of concern for Japanese companies, which are reluctant to raise prices when consumption lacks strength.
"For the Japanese economy, positives, such as recovering exports, outweigh negatives, like rising costs, at present. But we will carefully monitor the impact of rising commodity prices," Kuroda said.
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