Tuesday 16 June 2020 2:52 pm

Bank of Japan boosts coronavirus lending beyond $1 trillion

Japan’s central bank has increased its coronavirus lending programmes to over $1 trillion (£792bn) but kept monetary policy on hold, with governor Haruhiko Kuroda signalling that it is bracing for a second wave of coronavirus infections.

Kuroda said it was impossible to rule out a second wave, signalling the Bank of Japan’s (BOJ) willingness to top up monetary support. 

The central bank stuck to its view that the world’s third-largest economy will gradually recover as the pandemic subsides in the latter half of the year, suggesting it has taken enough steps for now.

However the Bank of Japan increased the nominal size of its lending packages for cash-strapped firms to $1 trillion from about $700bn announced last month.

“We can’t rule out the risk of a second wave of infections,” which would add to concerns over the surging number of cases in emerging economies, Kuroda told a news conference, warning that the global economy was in “an extremely severe situation”.

Such uncertainties over the pandemic cloud Japan’s economic outlook and may force the BOJ to extend its crisis-response tools beyond the current March 2021 deadline, he said.

“If the need for our support diminishes, we can ponder an exit. But we are ready to keep these supports in place for quite a long time,” Kuroda said.

The BOJ’s coronavirus loans programme provides zero-interest loans to banks if they boost lending to companies hit by the pandemic. 

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The support package is aimed at avoiding a liquidity crunch, but the actual amount of financing will depend on the level of demand from businesses to borrow from banks.

In a widely expected move, the BOJ maintained its yield curve control targets at -0.1 per cent for short-term interest rates and 0 per cent for long-term rates.

At Tuesday’s rate review, the central bank also made no major changes to its programs to ease corporate funding strains, including a lending facility aimed at channeling funds to firms.

The BOJ is among a host of major central banks that have pumped trillions of dollars into financial systems to support businesses hit by the coronavirus pandemic.

Kuroda said the BOJ was ready to expand the size of the lending programs, or take other means to support the economy such as cutting interest rates and ramping up asset buying.

“Given uncertainty on how the pandemic could affect our economy and markets, we may need to ponder new measures. We’ll respond flexibly,” he said. 

As of Tuesday, Japan had 17,601 recorded coronavirus infections with 929 deaths. Prime Minister Shinzo Abe declared a state of emergency in April, requesting businesses to close and citizens to stay home, a move that dealt a severe blow to consumption.

The BOJ eased policy in March and April, pledging to buy more assets, gobble up unlimited amounts of government debt and create lending facilities to channel money to firms.

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