Bank of Japan expects the economy to expand 3.8% this fiscal year.
It will offer cheap loans to banks funding activities to counter climate change.
The Bank of Japan cut its growth forecast for this fiscal year on Friday, but maintained its view that the economy was heading for a moderate recovery, a sign that monetary policy will remain in a maintenance pattern for some time.
In its two-day rate review that ended on Friday, the BOJ also released an outline of its new scheme aimed at boosting funding for activities combating climate change.
It will offer interest-free funds for a period of one year that can be transferred as many times as you like to financial institutions, the scheme showed.
The climate scheme will be launched this year and will last until fiscal year 2030. The BOJ will offer funds to banks that make green and sustainability-linked loans, as well as invest in green bonds and sustainability-linked bonds. Transition financing loans will also apply to the plan.
The BOJ said it will not pay any interest incentives to banks that take advantage of the scheme.
As expected, the central bank left its yield curve control (YCC) target unchanged at -0.1% for short-term interest rates and 0% for 10-year bond yields.
In new quarterly projections released Friday, the BOJ said it expects the economy to expand 3.8% in the current fiscal year ending March 2022 and increase 2.7% the following year.
In previous forecasts made in April, the BOJ expected the economy to grow 4.0% this fiscal year and 2.4% the following year.
A resurgence of infections has prompted the government to impose a new state of emergency in the Olympics host city, Tokyo, less than two weeks before the Games, dashing politicians’ hopes for a strong growth pickup during the trimester.
Japan’s economy contracted an annualized 3.9% in January-March and probably barely grew in the second quarter, as the pandemic affected spending on services.
Analysts polled by Reuters now expect the economy to grow 4.2% in the current quarter, down from an estimate they made last month, due to the impact of new pandemic restrictions.
Reporting by Reuters.