BOJ set to end COVID relief program, but no change to loose policy

A man walks past the Bank of Japan building in Tokyo, Japan January 15, 2018. REUTERS/Kim Kyung-Hoon/File Photo

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  • End of pandemic relief program reflects easing funding strains
  • BOJ set to keep rates ultra-low at September 21-22 meeting
  • BOJ may consider minor changes to guidelines flagging pandemic risk
  • No changes planned to pledge to keep rates low and policy easy

TOKYO, Sept 12 (Reuters) – The Bank of Japan is expected to end a pandemic relief funding program as planned this month and discuss adjustments to a policy guidance that flags the COVID-19 pandemic as the main economic risk, three sources familiar with his thinking say.

A final decision will be made at the BOJ’s policy meeting on September 21-22, when the board reviews data to ensure Japan’s persistently high coronavirus cases are not leading to a sharp drop in economic activity. , the sources said.

Japan’s economy grew 2.2% annualized in April-June, recording a slower-than-expected rebound from a COVID-induced recession amid a resurgence in infections, supply constraints and rising raw material costs weigh on consumption and production.

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Winding up the scheme would reflect the easing of funding strains among small service sector businesses that have been hardest hit by the pandemic, as the lifting of COVID-related restrictions, including the easing of border controls, helps boost consumption. Read more

“While some businesses remain under stress, corporate financing has generally improved,” one of the sources said. “The conditions to end the regime are being put in place,” another source said.

At the policy meeting, the BOJ is expected to maintain its interest rate targets at -0.1% for short-term rates and around 0% for the 10-year government bond yield.

The country’s fragile recovery has forced the BOJ to remain an exception among a global wave of central banks tightening monetary policy to fight soaring inflation.

The BOJ has already canceled most emergency programs to cushion the immediate blow of the COVID-19 crisis, but kept the program targeting small businesses intact until September.

The end of the program would symbolize the BOJ’s move away from crisis-mode policies and towards broader risks such as rising input costs and the outlook for slowing global growth, analysts said.

With the risks to the economy widening, the BOJ could also change part of its policy guidance which pledges to “review the impact of the pandemic” and “strive to support corporate financing conditions.” “, said the sources.

But the BOJ is expected to leave unchanged larger parts of the forecast that promise to step up stimulus as needed and keep interest rates at “current or lower” levels, the sources said.

“The BOJ may see the possibility of discussing minor changes to the guidelines,” a third source said. “But the key message is unlikely to change, which is the need to maintain an ultra-loose policy.”

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Reporting by Leika Kihara; Additional reporting by Takahiko Wada; Editing by Jacqueline Wong

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