Bank of Japan stands pat to assess impact of economic support

TOKYO — The Bank of Japan left its main policy tools unchanged after a two-day board meeting on Tuesday, as the central bank saw the need for more time to assess the impact of its credit easing in response to the coronavirus pandemic.

The credit easing measures introduced in the last three months included purchasing corporate debt and lending money to commercial banks that support small businesses and households.

Both measures are aimed at preventing economic disruptions caused by the pandemic from resulting in job cuts or bankruptcies, as Prime Minister Shinzo Abe has deployed record-shattering fiscal stimulus to undergird the economy.

In line with the expansion of a government loan program for small businesses, the BOJ said on Tuesday it will increase the amount of private debt it is prepared to purchase to 110 trillion yen ($1 trillion) from 75 trillion yen.

Other steps the BOJ has taken include doubling purchases of equities and a pledge to buy Japanese government debt without limit.

The central bank has kept its short-term interest rate target unchanged at minus 0.1% and maintained a goal of steering long-term rates to around zero.

The government and the central bank are both now in emergency mode in an effort to prevent economic activity from sliding further. A second supplementary budget enacted last Friday included rent assistance for small businesses, employment protection subsidies for businesses and income support for single parents and low-income university students.

The record pace of spending by the government has resulted in a sharp increase in government debt, prompting the central bank to step in to support the bond market.

Japan’s economy shrank at an annualized rate of 2.2% in the January-March quarter, and economists expect a contraction of 21% in April-June, reflecting the impact of a national state of emergency in place between April and May.

The emergency declaration was fully lifted on May 25, but fears about a second wave of infection have kept economic activity such as dining, travel and shopping subdued, fueling concern about the economic recovery.

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