BOJ Looks to Demonstrate Agile Stance With Emergency Meeting

(Bloomberg) -- The Bank of Japan called for an emergency policy meeting later this week as it looks to quickly provide funding for struggling businesses and demonstrate its nimble stance on supporting the economy.

Friday's one-day gathering is not expected to deliver any show-stopping monetary policy moves, as the main agenda is to flesh out details of a lending program it alluded to at its last meeting.

The BOJ will indirectly offer more cash for small companies striving to stay afloat during the coronavirus pandemic, but will stop short of the direct assistance for firms offered by the Federal Reserve through its main street lending program.

Fed Widens Main Street Loan Program to Reach More Businesses

The unscheduled meeting provides the BOJ with an opportunity to show its pro-active stance on helping businesses deal with the virus crisis following emergency meetings by the Federal Reserve and European Central Bank, even though it will likely leave its main monetary policy settings unchanged.

“There is no need for the BOJ to add to its easing measures this time,” said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.

Bond Buying

Last month the BOJ more than doubled its ceiling on corporate bond buying and made its purchasing of government bonds unlimited.

Kodama says he's interested to see what incentives the central bank will give to commercial banks to take up interest-free loans and lend out the money to businesses.

“The purpose is essentially the same as the main street lending program in the U.S. Still, government-affiliated banks will play the direct role of lending to firms, instead of the BOJ,” he said.

Read more: Bank of Japan Looks to Highlight Fiscal-Monetary Double Punch

The need to support small companies is intensifying as Prime Minister Shinzo Abe delivers an economic package of more than $1 trillion at a slower pace than other developed nations. Most Japanese companies and households still haven't received government subsidies and cash handouts from the package approved April 30.

Funding Program

The BOJ aims to use the new funding program to complement loan programs introduced by the government to reduce or exempt guarantee fees and interest rates on credit guaranteed loans.

The bank already sketched out the key part of its funding program at its last gathering April 27. Financial institutions will be able to earn 0.1% interest for the amount of lending they carry out using the funding, while paying no interest to the central bank. The BOJ is considering other details of the program, including the range and scale of lending.

What Bloomberg's Economist Says

“With an unscheduled policy meeting on Friday to discuss an additional funding program, the BOJ will be able to move more swiftly to get money where it's critically needed -- hopefully, before companies start to succumb in greater numbers to the pandemic.”

--Yuki Masujima, economist

Click here to read more.

©2020 Bloomberg L.P.

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.