Bank of Japan pledges $ 1 trillion in coronavirus loans

The Bank of Japan has increased its coronavirus lending program to more than $ 1 trillion but has kept monetary policy on hold as Governor Haruhiko Kuroda signaled on Tuesday that it will be years before interest rates rise.

Mr Kuroda made it clear that the Japanese central bank was preparing for a lengthy battle against the coronavirus when he warned that the global economy was in an “extremely serious situation” with the risk of a second wave of Covid-19 infections.

The BoJ’s decision suggests that the central bank will continue to look for ways to prop up the financial sector, but sees no scope for further additions more monetary stimulus at the moment.

The Covid-19 program, which has now increased from 75 trillion yen to 110 trillion yen ($ 1.02 trillion), provides interest-free loans to banks as they increase corporate lending. It is supposed to avoid a liquidity shortage, but the actual amount of BoJ funding would depend on corporate demand for bank loans.

The main loan program is $ 90 trillion and an additional $ 20 trillion to purchase commercial paper and corporate bonds. The BoJ said the total size would be “¥ 110 trillion + alpha” – which suggests it could go even higher.

Mr. Kuroda said “Corporations are still under severe cash flow stress,” but the government, BoJ and banks’ response would help keep them afloat.

The BoJ left overnight rates at minus 0.1 percent and continued to cap 10-year bond yields at around zero percent. It said it would continue to buy exchange-traded equity funds at an annual rate of 12 trillion yen. The central bank voted for the policy with an 8: 1 majority.

Mr. Kuroda said he still anticipates the economy will recover later in the year, noting that “business and household expectations for medium- and long-term growth have not fallen as much”.

But it sent a strong signal that Japanese rates would not rise for the foreseeable future. “Fiscal year 2021 or 2022, we’re a long way from making rates rise,” he said. The 2022 financial year runs until March 2023.

In a rare reference to the activities of another central bank, Mr. Kuroda said it was difficult for the BoJ to raise interest rates in front of the US Federal Reserve.

“Although the BoJ’s assessment of the economy and prices was stricter than before” [monetary policy meeting], there were no big surprises, “said Tetsufumi Yamakawa and Kazuma Maeda, economists at Barclays.

“As budget spending picks up under the government’s emergency economic measures and financial conditions remain accommodating, the BoJ appears to have put further action on hold to monitor the impact of the various monetary easing measures it has taken so far.”