Major Policy Settings Unch., Phase Out Of SME Financing, With New Facility Created

The BoJ left its benchmark monetary policy settings unchanged, maintained its forward guidance and noted that it will phase out its special COVID-related SME financing measures, shifting to a fund provisioning scheme that will meet a wider range of financing needs (full details: https://www.boj.or.jp/en/announcements/release_2022/rel220922a.pdf ).

• The Bank noted that inflation expectations had risen, with a further rise in inflation likely this year before an expected moderation.
• The Bank deemed that extremely high uncertainties remain when it comes to the economic outlook (citing COVID, Russia-Ukraine matters, commodity prices and overseas economic activity/inflation).
• The Bank also noted that “it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices). “
• The phase out of financing provisions for SMEs (as opposed to an outright cessation at the end of September) and the emergence of a new facility provided a surprise. Meanwhile the fact that the BoJ left its forward guidance unchanged fell in line with the consensus view, although some had suggested that the Bank would remove the “or lower” phrase from the passage.