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Bank of Japan Set to End Covid Relief Funding Next Week

Japan’s economy expanded an annualised 2.2% in April-June, staging a slower-than-expected rebound from a Covid-induced slump.

The Bank of Japan looks sets to ease its Covid support policies for small businesses at its meeting next week.
FILE PHOTO: Coins and Japanese yen banknotes are seen in this image taken June 16, 2022 by Florence Lo, Reuters.


The Bank of Japan is expected to end its pandemic-relief funding scheme this month, three sources familiar with its thinking say.

The bank’s board will meet on September 21-22 to review the recent effect of Japan’s high coronavirus cases on economic activity.

It will also discuss adjustments to a policy guidance that flags the Covid-19 pandemic as the top economic risk.

Japan’s economy expanded an annualised 2.2% in April-June, staging a slower-than-expected rebound from a Covid-induced slump as a resurgence in infections, supply constraints and rising raw material costs weigh on consumption and output.

The winding up of the scheme would reflect easing funding strains among small, service-sector firms that were hardest hit by the pandemic, as the lifting of Covid curbs and easing border controls help revive consumption.

“While some firms remain under stress, corporate funding has generally improved,” one of the sources said. “Conditions for ending the scheme is falling into place,” another source said.


Interest Rate Targets

At the policy meeting, the BOJ is widely expected to maintain its interest-rate targets at -0.1% for short-term rates and around 0% for the 10-year government bond yield.

The country’s fragile recovery has forced the BOJ to remain an outlier among a global wave of central banks tightening monetary policy to combat surging inflation.

The BOJ has already rolled back most emergency schemes to cushion the immediate hit from the Covid crisis, but kept intact the scheme targeting smaller firms until September.

An end to the scheme would symbolise how the BOJ is shifting away from crisis-mode policies, and turning its attention towards broader risks such as rising input costs and prospects of slowing global growth, analysts say.


Policy Tweaks

With risks to the economy broadening, the BOJ may also change a portion of its policy guidance that pledges to “scrutinise the impact of the pandemic” and “strive to support corporate funding conditions,” the sources said.

But the BOJ is likely to leave unchanged more significant parts of the guidance that promises to ramp up stimulus as needed, and keep interest rates at “current or lower” levels, the sources said.

“The BOJ may see scope to discuss minor tweaks in the guidance,” a third source said. “But the key message likely won’t change, which is the need to keep policy ultra-loose.”


  • Reuters, with additional editing from Alfie Habershon


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Alfie Habershon

Alfie is a Reporter at Asia Financial. He previously lived in Mumbai reporting on India's economy and healthcare for data journalism initiative IndiaSpend, as well as having worked for London based Tortoise Media.


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