Bank of Japan cuts pandemic economic support

The Bank of Japan has announced plans to reduce its emergency economic support program, reducing corporate debt redemptions to pre-pandemic levels as it follows other major central banks in phasing out crisis-era policies.

However, the BoJ has not changed its ultra-loose monetary policy as it monitors the impact of a new variant of the Omicron coronavirus.

Financial support, which was introduced in March 2020, it included the purchase of corporate bonds and commercial papers as well as offering cheap financing to financial institutions that provided loans to small businesses affected by the pandemic.

The central bank announced on Friday that it will complete the purchase of corporate bonds and commercial papers, which increased the balance of its stake by ¥20tn ($ 176 billion), by the March 2022 deadline as expected. The central bank said it would extend the loan scheme for smaller companies to six months until September.

“We unanimously decided to continue [the scheme] help small and medium-sized enterprises, ”said Haruhiko Kuroda, GoJ Governor, at a press conference. He added that sketching enlargement at an early stage would create a sense of security among companies and lenders.

The decision to maintain support for small and medium-sized enterprises has reiterated the emphasis on the sector by the administration of Fumi Kishide, Japan’s prime minister, since October.

The BoJ statement was in line with this week’s moves by other central banks to tighten monetary policy. Bank of England on Thursday raised its reference interest rate in response to rising inflation, making the UK the first G7 economy to do so since the start of the pandemic.

The The Federal Reserve also announced the planned end of its pandemic support to the U.S. economy, doubling the rate at which it will reduce government bond purchases.

After a two-day monetary policy meeting this week, the BoJ decided to keep its leverage in place, keeping overnight interest rates at minus 0.1 per cent and those for ten-year yields at around 0 per cent, as expected.

Kuroda said decisions on the monetary policy of other central banks “did not immediately affect the BoJ’s political stance”. The rise in the underlying consumer price index is hovering around 0 per cent, and there is still a long way to go to reach the central bank’s 2 per cent target, the governor said.

On the other hand, the US is facing rising consumer inflation, which reached 6.8 percent in November, its fastest growth in nearly 40 years.

Friday’s policy decision left the BoJ among the world’s largest central banks, and a position that Marcel Thieliant, a senior Japanese economist at Capital Economics, said would remain in place for the foreseeable future.

Expectations about this have severely affected the yen, keeping the Japanese currency at less than 110 ¥ for the US dollar since late September.

The exchange rate barely shifted from the BoJ’s announcement on Friday, holding at about 113.5 yen per dollar an hour after the central bank’s announcement.

Exchange rate analysts said forecasts of growing inequality between Japanese and U.S. interest rates for much of 2021 have prompted funds to play a strategy of short-yen trading.

Although some of those positions have been canceled in recent weeks due to concerns about the expansion of Omicron, short bets are likely to be renewed in the coming days, currency traders said.