July 7, 2022

The Bank of Japan after its two-day policy-setting meeting have decided to cut back its COVID-19 funding support to large firms. The move comes due to improving financing conditions among the same. While it has continued to maintain its ultraloose monetary policy unchanged due to the uncertainty over the Omicron variant of the coronavirus.

Summary of the meeting –

• The central bank mentioned to cut down on its buying of commercial paper and corporate bonds issued by large firms. While it will retain the same until September.
• The central bank will continue to guide the 10-year Japanese government bond yields around zero percent and set short-term interest rates at minus 0.1 percent.
• The BOJ starting from April will gradually reduce commercial paper purchases to the pre-pandemic levels of around 2 trillion yen and corporate bonds at 3 trillion yen.
• The BOJ also mentioned that it will continue to purchase exchange-traded funds with an upper limit of 12 trillion yen a year.

According to reports, the Japanese central bank’s pandemic funding support program consists of purchases of corporate bonds and commercial paper issued by large firms with a combined limit of 20 trillion yen ($176 billion). While also the provision of providing cheap funds to financial institutions that are extending loans to financially struggling smaller firms.

As the country relies heavily on imports, with the impact magnified by a weak yen, in the recent months it recorded higher energy and raw material costs. Due to higher gasoline and kerosene prices the wholesale prices have also gone up, leaving some companies especially in the food industry to raise prices.

The BOJ is dialing back on its emergency stimulus and shift to tightening policy after being seen as one of the last among central banks in major economies to do so. This is so as price increases in the country are subdued and its 2 percent inflation target is still far off.

Other banks suggesting interest rate hike –

• The Bank of England since the pandemic became the first among central banks in the Group of Seven industrialized nations to raise interest rates on Thursday.
• Earlier, the U.S. Federal Reserve to cope with surging inflation that came with an economic recovery and supply chain disruptions signaled three rate hikes in 2022 with a faster-than-expected end to its bond-buying.
• While lastly, the European Central Bank took a more cautious approach to narrow the pandemic stimulus situation.