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Climate change lending supported by the Bank of Japan has thrown up questions on how to measure the impact on consumer prices as new spending likely boosts costs, but is also expected to bring offsetting productivity gains, MNI understands.

Bank economists are working on modeling information and data of climate change impacts on the macroeconomy and inflation for the board.

But creating a framework on how to measure new central bank climate change lending policies is fresh ground, with little verification data by central banks around the globe as highlighted in recent board discussions reported by MNI on July 28 (MNI BRIEF: Lender Data Crucial For Climate Policy Reviews: BOJ).

BOJ Governor Haruhiko Kuroda has also pledged to use the central bank's foreign currency reserves to buy green bonds abroad to support broader efforts to fund policies and technologies to fight climate change.


The Bank of Japan has made clear it does not intend to pick winners among potential projects and policies, and leave that diligence work to banks and financial institutions., along with the government and parliament.

But the BOJ has also noted that climate change will affect financial system stability and could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective.

To be sure, the climate change lending plan awaits details and the impact could take years to understand with the BOJ also watching the impact of Covid-19 on the near-term outlook.

But the systemic risks are clear and not directly comparable to natural disasters, such as heavy rain or earthquakes, that have strongly damaged the real economy previously. Consumer price changes were temporary on both the supply and demand sides.

Bank officials are focused on medium- to long-term price moves, or the underlying trend.