Bank of Japan boosts business support plan

The Bank of Japan (BoJ) on Friday announced a new 30,000 billion yen (255 billion euros) incentive loan program for businesses to help them weather the crisis. In total, the exceptional measures taken by the BoJ since March to support the financing of Japanese companies now represent the equivalent of 635 billion euros.

The BoJ has also decided to extend its other exceptional support mechanisms by six months, until the end of March 2021. These include two mechanisms for zero-rate loans with a maximum maturity of one year and repurchases by the BoJ of corporate debt securities. To encourage banks to play the game, they are rewarded with a positive interest rate of 0.1% on their deposits with the BoJ equivalent to the loans they will grant to companies, instead of a usual rate negative of - 0.1%. The European Central Bank has developed a similar mechanism.

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The BoJ also renewed its policy of buying Japanese public bonds to ensure that their ten-year yields remain around zero.

Imitating the US Federal Reserve (Fed), the Bank of Japan no longer sets an annual ceiling for its bond buybacks, a way of emphasizing its desire to act at all costs to reassure the markets and the financial system. Japan entered a technical recession in the first quarter of 2020 for the first time since 2015. The equation for the BoJ gets even worse with the threat of the return of deflation.