Bank of Japan reduces emergency pandemic support as global BCs look to post-Covid era

BC, the seat of Japan is in Tokyo

Pur Lika Kihara

TOKYO (Reuters) – The Bank of Japan on Friday cut emergency funding approved under the pandemic, but maintained ultra-flexible monetary policy and expanded financial facilities for small businesses, boosting expectations that it will remain among the most stimulating and predictable central banks going forward. .

Bank of Japan (BoJ) President Haruhiko Kuroda said that borrowing costs will remain low in the country even as other central banks raise interest rates, and emphasized that reversing emergency funding would in no way be a prelude to a full cash withdrawal. Stimulus.

The Bank of Japan’s decision, backed by cautious optimism that the economic damage from the coronavirus crisis is gradually recovering, came hours later if the United Kingdom becomes the first G7 economy to raise interest rates since the pandemic began.

The central banks of the United States (the Federal Reserve) and the eurozone (the European Central Bank) have also moved toward reversing crisis-era catalysts, albeit to varying degrees, reflecting their divergent views – as well as their uncertainty – about headline-increasing inflation.

Concerns about the recent and rapid spread of the micron variant of the coronavirus have complicated the challenge facing monetary policy makers, whose monetary policy plans have been disrupted in a post-pandemic economic revival scenario.

In a widely expected decision, the Bank of Japan on Friday kept its target for short-term interest rates at -0.1% and for 10-year bond yields at around zero.

The Bank of Japan also extended the March 2022 deadline for its pandemic relief loan scheme by six months, with adjustments to the terms, to ensure commercial banks can continue channeling money to small businesses.

But BC decided to slow purchases of corporate bonds and “commercial paper” to pre-pandemic levels starting in April, in a sign of marked improvements in the financial conditions of major companies.

It will take about five years for the Bank of Japan’s corporate debt to return to pre-pandemic levels, Kuroda said.