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MNI INSIGHT: BOJ To Be Cautious In Withdrawing Covid Measures

TOKYO (MNI)

The Bank of Japan will be careful not to unnerve markets when it attempts to scale back emergency pandemic measures to support corporate financing and liquidity after the government eases Covid restrictions as early as the fourth quarter this year, MNI understands.

Japan has made substantial progress in vaccination, though state of emergency measures are in place in 19 out of 47 prefectures until the end of September, and the BOJ could extend the policies introduced in mid-March of last year depending on developments with Covid-19 infection rates and other potential steps by government. (see: MNI REVIEW: BOJ Boosts Easy Policy; Introduces New Lending Op.)

For the moment, the government is looking to ease restrictions later this year and the BOJ is keeping a close eye on how companies respond with pricing and strategies.

If corporate financing and bank lending to smaller firms improves significantly, reducing liquidity concerns, that could pave the way for the BOJ to gradually scale back the special measures.

But bank officials will do so cautiously, to avoid undermining sentiment.

FINANCIAL MARKETS, EASING RESTRICTIONS

The outstanding balance of funds provided by the BOJ was about JPY70 trillion as of June and the BOJ may consider alternative measures to ease financial market concerns, but also to support targeted businesses.

The BOJ in June extended support financing by six months until the end of March 2022 as corporate financing, particularly for the services sector, remained under stress due to the impact of Covid-19.

This sets the stage for policymakers later this year to start discussing how the BOJ goes ahead if lockdowns and other measures ease significantly by March of next year.

Ahead, some of the measures now in place such as reduced hours at restaurants and bars and a ban on serving alcohol will be relaxed. The government is also looking to ease attendance limits at large public events and restart application for the Go To Travel campaign, which was canceled in late 2020 amid heavy criticism that subsidising domestic travel would only spread the virus.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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