Kuroda Says BOJ Will Mull Climate in Monetary Policy Discussions
Haruhiko Kuroda, governor of the Bank of Japan. (Photographer: Taketo Oishi/The Nikkei/Bloomberg)

Kuroda Says BOJ Will Mull Climate in Monetary Policy Discussions

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The Bank of Japan will consider climate change in its monetary policy discussions, Governor Haruhiko Kuroda said in his clearest signal yet that the central bank is looking to support the battle against global warming.

“We have a great interest” in climate change and its impact on the economy and the financial system, Kuroda said in an interview with Bloomberg on Thursday. “Naturally, how we respond to this at the level of monetary policy will become a topic of discussion.”

The comments come amid growing debate among central bankers over whether or how they should support efforts to counter climate change, following a series of pledges by governments including the U.S., China and Japan to reduce greenhouse emissions.

Kuroda Says BOJ Will Mull Climate in Monetary Policy Discussions

Touching on another key theme among investors, Kuroda said global inflation concerns were most relevant in the U.S. Federal Reserve Chair Jerome Powell has said some temporary inflation pressures will prove transitory and stimulus should stay in place for longer.

“That policy stance is based on the recognition that it will take time to overcome low inflation once it is entrenched,” Kuroda said. “That is the lesson learned from Japan’s experience of prolonged deflation.”

Until now, Kuroda has largely stuck to the view that the BOJ needs to consider climate change from the perspective of how it might present a risk to the financial system, a stance similar to Powell’s.

While his latest remarks suggest he may be moving in the direction of European Central Bank chief Christine Lagarde or the Bank of England’s Andrew Bailey, who have shown a more aggressive stance on green issues, it remains to be seen what action the BOJ will take.

“While there are discussions about whether central banks should be buying green bonds, many of those discussions are over asset management, not monetary policy,” Kuroda said, when asked if the BOJ would consider purchasing green bonds as a response to climate change.

Targeting green bonds is an approach Lagarde has had difficulty moving forward. Kuroda didn’t rule out using new loan incentives the BOJ launched in March.

Kuroda, Powell, Bailey and Lagarde will be among those discussing ways to promote green financing measures at next week’s Green Swan Conference organized by the Bank for International Settlements, the IMF and others.

Interest is growing in how the BOJ might support Japan’s pledge in April to reduce emissions by 46% by 2030 on its way to becoming carbon neutral by 2050.

Kuroda Says BOJ Will Mull Climate in Monetary Policy Discussions

Some 83% of economists surveyed by Bloomberg in April said the BOJ will end up using its new lending incentives to promote ESG or higher growth policies.

The incentives essentially pay commercial banks different interest rates on their reserves depending on the type of lending they provide for businesses. Kuroda said the incentives were intended to give the bank more scope for lowering its policy rate not as a possible tool for responding to climate change. But they could be adapted, he added.

As for inflation and signs that the tide of central banks is starting to signal a move away from the emergency policy measures of the pandemic, Kuroda once again underlined that the BOJ would keep its stimulus rolling.

“Each central bank has to adapt its monetary policy to its own economy, price and financial situations,” Kuroda said. “Our inflation rate is still quite low and so we have to be persistent in conducting our monetary easing to achieve our 2% price stability target.”

Kuroda also said:
  • “There is nothing wrong in itself with monetary policy differing from country to country in accordance with economic realities. However, we need to keep a close watch on how international capital markets and financial markets will move in the process.”
  • Economic inequality is growing not just between advanced and developing nations but also within countries based partly on the different pace of recovery of each industry. “In every country, the problem of inequality is fundamentally dealt with by governments, but even in the central banking world, there’s significantly growing interest in this issue.”
  • Japan’s economy will reach its pre-pandemic level by the end of this year, but the funding conditions at companies, especially those providing face-to-face services, remain severe. “Depending on the impact of the virus situation, we will of course consider extending the special program due to expire in September this year if needed.”
  • The BOJ isn’t considering selling or stopping purchases of ETFs given they are part of efforts to achieve the 2% price stability target. “We are not talking about an exit at all at this point.”

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