TOKYO — The Bank of Japan on Friday decided on Friday to extend its emergency programs to funnel funds to businesses by six months, through the end of March, as the central bank remains on alert for a possible COVID resurgence that could throw the nation’s economic recovery off track.
At issue is the BOJ’s purchases of corporate bonds and commercial paper as well as one-year interest-free loans to banks supporting COVID-hit businesses. The programs, launched in March 2020, are intended to complement the government’s initiative to keep small- and medium-size enterprises afloat with policy loans and credit guarantees.
The government decided last month to extend its SME support through the end of December.
The discussion came as central banks around the world have started winding down emergency measures while maintaining their monetary easing policies, somewhat encouraged by economies that have started to recover from the pandemic. The U.S. Federal Reserve said on June 2 it would start unloading corporate bonds it purchased last year.
In March, the BOJ said it would scale back its equity purchase program. In May, the Japanese central bank skipped equity purchases for the first time in eight years.
Still, the Japanese government and BOJ are wary of funding strains among SMEs, which have been hit disproportionately hard by the pandemic. BOJ data shows funding needs are subsiding at large corporations but remain elevated among SMEs.
After a two-day policy meeting, the central bank left its main monetary levers where they are — guiding short-term interest rates to minus 0.1% and long-term rates to around zero.
Overall, the decisions reflect a benign market environment; stock prices and foreign exchange rates have held mostly steady this year.
There is also budding optimism about Japan’s virus situation. On Thursday, the government decided to lift the state of emergency for most of the country in response to an accelerating pace of vaccinations. As of Tuesday, at least 15% of the nation’s population had received at least one shot.
There are lingering concerns about a possible COVID resurgence as Tokyo hosts the Olympics next month and anticipates tens of thousands of visitors, including athletes, organizers and officials. Epidemiologists have warned that a state of emergency could be called during the Olympics if the two-week spectacle brings a surge in cases.