FILE PHOTO : A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato/File Photo
May 22, 2020
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – Japan’s central bank created its own version of the U.S. Federal Reserve’s “Main Street” lending programme to channel more money to small businesses, in a bid to keep the coronavirus pandemic from pushing the economy deeper into recession.
In an emergency meeting on Friday, the Bank of Japan also extended the deadline for a raft of measures it has put in place to combat the fallout from the virus, including accelerated corporate debt purchases, by six months to March 2021.
“The BOJ will take additional monetary easing steps without hesitation if necessary, with a close eye on the impact from the coronavirus pandemic,” the central bank said in a statement.
As widely expected, the BOJ kept unchanged its short-term interest rate target of -0.1% and a pledge to guide 10-year government bond yields around 0%.
The decision underscores concerns in Tokyo that without stronger steps to pump credit to cash-strapped firms, the pandemic could lead to a spike in bankruptcies and job losses.
Japan slipped into recession for the first time since 2015 in the last quarter, putting the economy on course for its deepest postwar slump as the health crisis ravages businesses and consumer spending.
The BOJ eased monetary policy for two straight months in April by ramping up risky asset purchases and pledging to buy unlimited amounts of government bonds to cushion the economic blow from the pandemic.
BOJ Governor Haruhiko Kuroda last month also instructed his staff to work on another loan scheme that would encourage financial institutions to tap government loan schemes in offering credit to small businesses.
Under the scheme finalised on Friday, the BOJ will pump cash to commercial banks that lend to small firms using funding-aid programmes launched by the government. It would also pay 0.1% interest to banks that boost such lending.
The central bank will start offering the loans from June.
The BOJ’s new scheme borrows many elements from the Fed’s “Main Street Lending Facility,” which aims to support lending to small firms with investment by the U.S. Treasury Department.
Like the Fed’s programme, the BOJ’s scheme essentially uses government guarantees to cover any losses that emerge if loans to small businesses go sour. Commercial banks can thus boost lending without fear of being saddled with huge bad loans, and even get paid interest for borrowing money from the BOJ.
Most steps the BOJ has taken so far are directed at big firms that have better access to bank loans and credit markets. The challenge for the central bank is to extend the reach to small businesses that quickly run out of cash once sales slump.
With the pandemic stoking fears of rising bankruptcies, the BOJ is being forced to work closer than ever with the government in seeking to avert a full-blown economic crisis, analysts say.
(Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Sam Holmes)
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