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BoJ launches its lending program at emergency meeting today

22 May 2020 11:05 AM

The Bank of Japan (BoJ) has created its own version of the Fed’s lending program to channel more money to smaller companies in an effort to prevent the spread of the coronavirus from pushing the economy deeper into recession. The bank has extended the deadline for a set of measures it has taken to combat the consequences of the virus, including speeding up corporate debt purchases for a period of 6 months until March 2021.

The bank confirmed its readiness to take further steps to stimulate cash if necessary, keeping interest rates unchanged at -0.10%, and pledging to keep government bond futures for 10 years around zero levels. The bank’s decisions are aimed at preventing an escalation in bankruptcies and job losses. Japan has slipped into recession for the first time since the last quarter of 2015, and is heading towards its deepest recession since the Second World War. The bank eased its monetary policy for two months in a row in April by increasing purchases of risky assets and pledging to buy unlimited amounts of government bonds to ease the blow to the Japanese economy.

Following its decisions today, the Bank of Japan will inject cash into commercial banks that lend to small businesses, and will pay 0.1% interest to banks that support such lending. The central bank will start providing loans from June. Like the Fed’s program, the Bank of Japan’s scheme will use government guarantees to cover any losses that may arise if loans to small firms falter, and thus commercial banks can lend without fear of being overburdened by bad loans.

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