Bank of Japan keeps policy steady, plans to launch new scheme on climate change

The BOJ said it will launch the climate change scheme by the end of this year and will release a preliminary outline of its plan at its next policy-setting meeting in July.

Jun 18, 2021 04:06 IST India Infoline News Service

The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank, Bank of Japan said. The Bank decided by a 7-1 majority vote, with 1 abstention, to set the following guideline for market operations for the intermeeting period.

With regard to asset purchases other than JGB purchases, the Bank decided by an 8-0 a majority vote, with 1 abstention, to set the following guidelines.

The Central Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding. The Bank will purchase CP and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of March 2022.

The BOJ said it will launch the climate change scheme by the end of this year, and will release a preliminary outline of its plan at its next policy-setting meeting in July.

Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad. Overseas economies have recovered on the whole, albeit with variation across countries and regions. In this situation, exports and industrial production have continued to increase steadily. In addition, corporate profits and business sentiment have improved on the whole. Business fixed investment has picked up, although weakness has been seen in some industries.

The employment and income situation has remained weak due to the impact of COVID-19. Private consumption has been stagnant due to strong downward pressure on consumption of services, such as eating and drinking as well as accommodations. Housing investment has stopped declining. Public investment has continued to increase moderately. Financial conditions have been accommodative on the whole, although weakness in firms' financial positions has been seen.

On the price front, the year-onyear rate of change in the consumer price index (CPI, all items less fresh food) has been at around 0 percent recently due to a rise in energy prices, despite being affected by COVID-19 and a reduction in mobile phone charges. Meanwhile, inflation expectations have been more or less unchanged.

Although the level of Japan's economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of COVID-19 waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government's economic measures. Thereafter, as the impact subsides, it is projected to continue growing with a virtuous cycle from income to spending intensifying. The year-on-year rate of change in the CPI (all items less fresh food) is likely to be at around 0 percent in the short run. Thereafter, it is expected to increase gradually, mainly on the back of continued improvement in economic activity, the rise in energy prices, and a dissipation of the effects of the reduction in mobile phone charges.

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