MNI STATE OF PLAY: Kuroda Details BOJ's Climate Lending Plans

Governor Haruhiko Kuroda said on Friday that the Bank of Japan will make the utmost efforts on climate change in line with the central bank's mandate and the potential impact on the economy and financial markets.

Kuroda told reporters, "Achieving the 2% price target as a mandate remains unchanged and we will consider what we can do to address climate change".

He added that the scale of new climate change measures may be sizeable as major commercial banks are considering large scale projects. The BOJ "will decide on the scale of new measures after further examining requests by commercial banks," Kuroda said.

On Friday, the BOJ, announced it stood ready to provide longer-term liquidity to financial institutions to support their efforts to address climate change issues.

Funds will be provided for one year in principle but "can be rolled out within the amounts outstanding of eligible investment or loans for an unlimited number of times," the BOJ said, adding the central bank has a policy of market neutrality on which projects get loans.

The BOJ will extend zero interest rate loans and the bank looks to financial institutions to add twice as much as the amount outstanding of funds to the Macro Add-on Balances.

Kuroda said that Friday's decisions after a two-day policy meeting, including no interest payments, are sufficient for commercial banks to increase their loans and investments to address climate change.

But he didn't rule out the possibility that the BOJ will pay interest on loans and investments in the future.

HIGH INTERNATIONAL COMMODITY PRICES

Kuroda said that Japan's economy will not deviate from a recovery path, although activity will remain weak amid a fourth state of emergency over the Covid-19 pandemic and firms are suffering from high costs.

Kuroda told reporters that both exports and production have continued to increase and capital investment has picked up steadily.

"The recent rise in international commodity prices was mainly caused by rapid recovery of demand and supply restriction. A net impact of high costs on Japan's economy is positive," Kuroda said.

Kuroda, however, warned that the impact of high costs varies, depending on industries and businesses, and the BOJ must keep a close eye on negative impacts.

INFLATION, GROWTH

The BOJ board upgraded its forecasts for inflation and lowered the GDP forecast.

The BOJ maintained the risk assessment made in April, saying, "Risks to economic activity are skewed to the downside for the time being, mainly due to the impact of Covid-19, but are generally balanced for the middle of the projection period onward." It also said, "Risks to prices are skewed to the downside."