The Bank of Japan will provide zero-interest loans to lenders financing climate change projects as it becomes the latest central bank to take action on carbon emissions.
under new planIt is expected to be launched before the end of the year, and banks will also be able to reduce the Bank of Japan’s negative interest rate deposits.
This arrangement effectively provides subsidies for commercial banks investing in emission reduction projects and may stimulate demand for green bonds.
Respectively, Bank of Japan The monetary policy remains unchanged, the overnight interest rate is maintained at -0.1%, and the commitment to purchase bonds on demand will maintain the 10-year Treasury bond yield at around 0%.
Under the leadership of Prime Minister Yoshihide Suga, Japan has pledged to achieve net zero carbon emissions by 2050, and the entire government is preparing new policies to achieve this goal.
“The bank has not formulated a completely independent course on this. Instead, it will cooperate with the government on the green strategy,” said Naoya Oshikubo, senior economist at Sumitomo Trust, before the meeting.
“Overall, this is an important step forward for Japan and integrate support for climate change initiatives into the financial system,” he added. The Bank of Japan announced the outline of the arrangement last month.
The details are similar to the Bank of Japan’s plan Introduced last year During the Covid-19 downturn, it provided cheap loans to banks that provided financing to SMEs.
These loans have a term of one year, but they can be extended indefinitely, and the central bank promises to implement the plan at least by 2031. “In fact, counterparties can obtain long-term financing for their qualified investments or loans,” the Bank of Japan said.
The Bank of Japan stated that in addition to paying zero interest rates, commercial banks can also double the amount of any borrowing under the plan in their “macro additional balance” with the central bank.
The macro additional balance pays zero interest rate instead of negative 0.1%.Japanese commercial banks hold a large amount of excess reserves in the central bank as a balance item Bank of Japan bond purchases.
For individual banks, the rule actually means that they will save 0.2% when issuing environmental loans under the new plan-0.1% multiplied by a factor of two.
The overall size of the Bank of Japan’s subsidies is unclear, as it will depend on the level of absorption and whether the central bank takes action to reduce the macro surplus granted for other reasons.
The Bank of Japan stated that eligible tools will include green bonds, sustainability-related bonds and transformation financing. It does not define these terms, which are often loosely used to describe bonds related to environmental projects.
The central bank stated in its economic outlook that Japan’s output will temporarily be lower than pre-pandemic levels and described the outlook as “highly uncertain”.
The slow progress of the vaccine means that Japan is not recovering as fast as the United States or Europe, and there is almost no sign of inflationary pressure. The Bank of Japan stated that price risk is “downward.”
For the year ending in March 2022, the Bank of Japan lowered its growth forecast from 4% to 3.8%, but raised its forecast for the next year from 2.4% to 2.7%.