The Bank of Japan (BOJ) has offered banks hundreds of millions of dollars in bonuses to help companies affected by Covid-19.
According to analysts, the aim of this is to ease the effects of its negative interest rate policy.
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Bank lending in the last few months has surged to a record high. This implies that the BOJ’s strategy is working. However, it also indicates a shift in policymakers’ attention to supporting banks rather than maintaining low rates.
In the past, the BOJ has prevented job loss and bankruptcy by printing a large amount of money. During this time, the economy fell into recession. Now, Covid-19 is putting even more pressure on regional banks.
Speaking to Reuters, Takehiro Noguchi, senior economist at Mizuho Research, said: “This is one of the most effective policy moves the BOJ has made in recent years. The BOJ will likely continue to take steps to alleviate the side-effect of its monetary easing. The BOJ thinks negative interest rates is something it should not have done.”
In March, the BOJ created a special “coronavirus relief” operation, to help reinforce companies that were low on funds. Under the scheme, the BOJ lends cash to banks against their lending to the private sector.
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By GlobalDataResults of the scheme
In April, the BOJ chose to give a 10 basis points (bps) or 0.1% per year bonus to banks using the scheme. This was a key enhancement in the operation.
The bonus resulted in many banks participating in the scheme – by July, they had taken 27 trillion yen ($250 billion) through it.
Originally, the operation was meant to be temporary and is scheduled to expire in March 2021. However, several market players now expect the BOJ to extend the operation.
