BOJ Expected to Offer Interest on Green Loans, Tweak Growth View

The Bank of Japan is seen standing pat on its main tools at this week’s meeting while putting meat on the bones of its climate change policy with an offer to pay interest to banks lending to green projects.

The BOJ will also trim its growth forecast for this fiscal year, while boosting next year’s, according to economists polled before a meeting of the central bank that ends July 16. The tweaks would reflect a delay in Japan’s recovery due to renewed restrictions to contain the coronavirus.

For the full survey of 47 analysts, click here.

BOJ Expected to Offer Interest on Green Loans, Tweak Growth View

About two-thirds of respondents said they see the BOJ’s new climate program being modeled on existing incentives that pay interest or offer some exemptions from the BOJ’s negative interest rate to banks lending to firms coping with the pandemic.

The BOJ last month promised to unveil details of a green lending measure at July’s meeting, joining other central banks in taking action on climate change. The European Central Bank last week said it will start including the issue in its policy considerations.

Under the BOJ’s green initiative, 43% of responding analysts see it paying 0.1% interest to banks on reserves that match loan or investment amounts to environmentally friendly projects. Some 14% said the rate would be 0.2%.

In terms of its Covid-era lending measures, the BOJ is seen on a diverging path from the Federal Reserve and other central banks that have started to scale back. Almost 80% of economists don’t see the BOJ signaling a pullback until next year.

The vast majority of analysts also said they see the BOJ holding its negative interest rate and asset purchases unchanged for the foreseeable future amid Japan’s stubbornly slow inflation.

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