Thursday, May 21, 2020

BOJ launches 3rd funding measure aimed at SMEs

     The Bank of Japan (BOJ) launched a third measure aimed at supporting small and medium-sized firms affected by the spread of the Covid-19 pandemic and extended the duration of all three measures by another 6 months until the end of March 2021.
     Japan's central bank noted its existing measures of purchasing commercial paper and corporate bonds, with a maximum amount outstanding of some 20 trillion yen, and the 25 trillion yen Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus.
     In its statement following an unscheduled policy board meeting that was announced on May 19, the BOJ said it would add a new fund-provisioning measure based on eligible loans from banks based on the government's 30 trillion yen emergency economic support plan.
     The total size of these three measures aimed a businesses, which will be known as "the Special Program," will be about 75 trillion.
     "By conducting these measures, the Bank will continue to support financing mainly of firms and to maintain stability in financial markets," BOJ said, reiterating that it is closely monitoring the impact of Covid-19 and "will not hesitate to take additional easing measures if necessary."
      Under its new fund-providing measure, BOJ will provide funds at a loan rate of zero percent while a positive interest rate of  0.1 percent will be applied to the outstanding balances of banks' current accounts that correspond to the amounts of loans provided through this measure.
      The BOJ's policy board also affirmed the key elements of its current monetary policy framework known as "yield curve control," which includes a negative interest rate of 0.1 percent on banks' excess reserves.
     It also confirmed decisions taken at its regular meeting in April in which it boosted its asset purchases and scrapped an earlier annual limit of buying 80 trillion yen of Japanese government bonds (JGBs) in favor of buying bonds "without setting an upper limit" so the 10-year yield remains around zero percent.
     BOJ confirmed it would be buying exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs) to their amounts outstanding increase at an annual pace with the upper limit of some 12 trillion yen and some 180 billion yen, respectively.
     As far as commercial paper and corporate bonds, BOJ said it would maintain their outstanding amounts at about 2 trillion and 3 trillion yen, respectively.
     However, BOJ will now undertake additional purchases of both these assets classes until the end of March 2021, as compared with April's target of September 2020, with the upper limit of 7.5 trillion yen for each asset. In April the additional purchases were raised to the 7.5 trillion from an earlier 1 trillion for each asset.
     Data released today showed Japan's consumer price inflation fell to only 0.1 in April from 0.4 percent in the previous two months and is now at the lowest level since November 2016.
    The drop in inflation is bound to ignite concern that BOJ is losing its fight against deflation.
    Japan officially fell into recession in the first quarter of this year as its gross domestic product shrank 0.9 percent following a fall of 1.9 percent in the fourth quarter of 2019, the country's first recession since late 2014.
     On an annual basis, GDP shrank 2.0 percent in the first quarter after shrinking 0.7 percent in the previous quarter. 
     At its April policy meeting, the BOJ slashed its forecast for growth and inflation.
     BOJ forecast the economy would shrink between 0.4 percent and 0.1 percent in the 2019 fiscal year, which ended on March 30, down from its January forecast of growth of 0.8 to 0.9 percent.
     For fiscal 2020, which began on April 1, BOJ forecast the economy would shrink a further 5.0 to 3.0 percent before expanding between 2.8 and 3.9 percent in fiscal 2021.

     BOJ forecast consumer prices would decline 0.7 to 0.3 percent in the current fiscal 2020 before rising to 0.0 to 0.7 percent in fiscal 2021, well below its 2.0 percent target.


Post a Comment