The Bank of Japan will offer zero-interest loans to lenders that finance climate change projects as it will become the last central bank to take action to cut carbon emissions.
Under new schemeThe launch of which is expected before the end of the year, banks will also be able to reduce the volume of deposits with the Bank of Japan with a negative interest rate.
The agreement actually creates a subsidy for commercial banks that are investing in emission reductions over other projects, and could spur demand for green bonds.
Separately, Bank of Japan made no changes to monetary policy, keeping overnight interest rates at minus 0.1 percent, and pledged to buy bonds as needed to keep 10-year government bond yields around 0 percent.
Under Prime Minister Yoshihida Suga, Japan has pledged to achieve zero carbon emissions by 2050, and the entire government is preparing new policies to achieve that goal.
“The bank does not develop an absolutely independent course in this regard. Rather, he will work with the government as part of his green strategy, ”said Naoya Oshikubo, senior economist at Sumitomo Trust, prior to the meeting.
“Overall, this is a major step forward for Japan, which includes support for climate change initiatives in the financial system,” he added. The Bank of Japan announced the outline of the agreement last month.
The details are similar to those of the Bank of Japan scheme. brought last year which offered cheap loans to banks financing small and medium-sized companies during the Covid-19 recession.
Loans will be issued for one year, but they can be rolled over an unlimited number of times, with the central bank promising to launch the scheme until at least 2031. “In fact, counterparties can obtain long-term financing for their eligible investments or loans. “, – said the Bank of Japan.
The Bank of Japan said that not only can commercial banks pay a zero interest rate, but they can add twice the amount of any borrowing under the scheme to their “macro premium” at the central bank.
The macro surcharge balance pays a zero interest rate instead of a negative 0.1 percent. Commercial banks in Japan have large excess reserves at the central bank created as a balancing item for Purchase of Bank of Japan bonds…
For an individual bank, this rule effectively means that they will save 0.2 percent – 0.1 percent multiplied by two – when they make an environmental loan under the new scheme.
The overall scale of the BOJ subsidy is unclear because it will depend on the takeover and whether the central bank takes action to reduce macroeconomic surplus balances provided for other reasons.
Eligible instruments will include green bonds, bonds linked to resilience, and transition financing, according to a statement from the Bank of Japan. It does not define the terms that are often used broadly to describe links associated with environmental projects.
In its economic forecast, the central bank said Japan’s output would remain below pre-pandemic levels for the time being and described the outlook as “highly unclear.”
Slow progress in vaccines means Japan has not recovered as quickly as the US or Europe, and there are no signs of inflationary pressures. The Bank of Japan said that price risks are “biased downward.”
For the year to March 2022, the Bank of Japan cut its growth forecasts from 4% to 3.8%, but raised its forecast for next year from 2.4% to 2.7%.