Bank of Japan introduces new funding for banks

The Bank of Japan on Friday introduced new funding for banks that it estimated would reach Yen30 trillion ($280 billion) to help them make loans to companies affected by the coronavirus pandemic.

The new measures are intended to reinforce the government’s financial aid, the BOJ said.

The central bank said it planned to make loans at zero interest for up to one year to banks participating in a government lending program that provides funds to cash-strapped smaller companies at no interest and with no collateral required.

The BOJ will effectively subsidize banks by applying a positive interest rate of 0.1% to banks’ deposits parked at the central bank based on the amount of loans provided through the new program.

Pandemic-related bankruptcies have increased rapidly over the past month in Japan. Some 174 companies filed for bankruptcy as of May 21 connected to the pandemic, according to Teikoku Databank.

At recent meetings, the BOJ has expanded its purchases of shares, corporate bonds and commercial paper in a bid to support corporate financing. It has also promised to buy unlimited government bonds to maintain low interest rates.

Also on Friday, the BOJ’s policy board decided to maintain its target for short-term interest rates at minus 0.1% and its target for the 10-year government bond yield around zero.

Megumi Fujikawa

Source:marketwatch.com