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Financial News: BoJ Holds Monetary Policy Steady, Boosts Covid-19 Lending

BoJ Holds Monetary Policy Steady, Boosts Covid-19 Lending Program

06/16/2020 - 03:24:00 (RTTNews)

(RTTNews) - Japan's central bank kept its key interest rate unchanged and expanded the size of the coronavirus lending program on Tuesday to support the coronavirus pandemic-hit economy.

The Policy Board of the Bank of Japan voted 8-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The central bank raised the size of the coronavirus lending program to JPY 110 trillion from JPY 75 trillion. The program includes purchases of commercial paper and corporate bonds in addition to loans to banks.

The credit easing measures implemented included purchasing corporate debt and lending measures to support small businesses and households.

The BoJ reiterated that its policy interest rate would remain at present or lower levels and added that it would closely monitor the impact of Covid-19 and is prepared to take additional easing measures if necessary.

The BoJ expects the Japanese economy is to remain in a severe situation for the time being due to the impact of Covid-19 at home and abroad.

"As the impact of COVID-19 subsides, the economy is likely to improve, supported by accommodative financial conditions and the government's economic measures, as well as through the expected materialization of pent-up demand and a projected recovery in production from the decline brought about by COVID-19," the bank said.

Inflation excluding fresh food is likely to be negative for the time being, mainly affected by COVID-19 and the decline in crude oil prices, the bank said. The BoJ expects the core inflation rate to turn positive as the economy improves, and then increase gradually.

Regarding the risks to the outlook, the BoJ pointed out that there have been extremely high uncertainties over the consequences of Covid-19 and the magnitude of their impact on domestic and overseas economies. "It is necessary to pay close attention to whether, while the impact of COVID-19 remains, firms' and households' medium- to long-term growth expectations will not decline substantially and the smooth functioning of financial intermediation will be ensured with financial system stability being maintained," the central bank said.

Capital Economics economist Marcel Thieliant do not expect the BoJ to boost its lending program any further. The total amount of support for corporate funding is now equivalent to nearly 20 percent of the debt of non-financial firms and bank lending surged by a massive 3.3 percent between March and May, the economist pointed out.

Thieliant also do not expect the bank to cut its interest rates once the virus is brought under control on concerns of the impact of the low interest rates on the health of the banking sector.

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