BoJ Unveils New Lending Program To Support SMEs

The Bank of Japan introduced a new lending program to help financing small and medium-sized firms struggling to operate amid the spread of the novel coronavirus, or Covid-19, but left its target for short-term interest rate and the bond yield target unchanged.

At the emergency meeting on Friday, the Policy Board of the BoJ unanimously decided to launch a lending scheme worth about JPY 30 trillion, which will provide funds to eligible counterparties against pooled collateral for up to 1 year at the loan rate of zero percent.

In order to support financing firms, the BoJ has already implemented purchases of CP and corporate bonds with a maximum outstanding amount about JPY 20 trillion and about JPY 25 trillion special funds-supplying operations to facilitate financing in response to the Covid-19.

The board unanimously decided to extend the duration of these measures by six months. The total size of all three measures together will total about JPY 75 trillion.

Marcel Thieliant, an economist at Capital Economics, doubts if these measures will now be sufficient to secure the financing needs of firms throughout the coronavirus crisis.

The board voted 8-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

Also, the bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

Data released earlier in the day showed that the core consumer price inflation turned negative for the first time in more than three years in April. Core consumer prices fell 0.2 percent on year, following a 0.4 percent rise in March.

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