MNI INSIGHT:Covid Complicates BOJ Calculus On Business Support

A jump in Covid cases has made it more difficult for the Bank of Japan to avoid extending its special financing programme for smaller firms, but is unlikely to take a decision at its July 20-21 meeting as it waits to see whether the government will withdraw its own small business support, MNI understands.

Until the Covid spike, the BOJ had been leaning towards ending the programme, with the Tankan survey indicating that smaller firms’ financing conditions are accommodative and commercial banks’ demand for BOJ loans falling. While bank officials judge downside risks to economy from the pandemic and measures to contain it are becoming smaller, they remain wary of a repeat of last summer’s spike in infections.

But oficials at the Bank would prefer to keep in step with the government after a joint agreement to support business financing during the pandemic. If the government were to withdraw its own measures, also set to expire on Sept. 30, then the BOJ might follow suit.

In the past the government has waited until just before similar measures have been due to expire before deciding whether to extend them, and potential distractions following July 10’s upper house elections also make it less likely it will make its decision soon.

COVID SPIKE

In the most recent extension in December, the BOJ curbed its support to major firms by scaling down its purchases of commercial paper and corporate bonds from the upper limit of JPY20 trillion previously to about JPY2 trillion for CP and JPY3 trillion for corporate bonds, from April of this year.

The BOJ has tentatively looked for a pickup in the economy in the third quarter based on a return to normal activity, particularly for services, (See: MNI INSIGHT: Govt Pressures Add To Weak Yen As BOJ Eyes Change).

But newly-confirmed Covid cases nearly doubled from a week earlier to over 45,000 on Wednesday, exceeding the 40,000 mark for the first time since May 18 and prompting speculation that the government could delay the start of a nationwide travel subsidy program set for early this month.

In Tokyo, 8,341 new cases were recorded on Wednesday, only one day after they exceeded the 5,000 mark for the first time since Apr. 28, and on June 30 the city government raised its pandemic alert level to the second-highest level on its four-level scale following a rise in infections for two consecutive weeks.