TOKYO (Reuters) – The Bank of Japan is ready to extend beyond March a range of steps aimed at easing corporate funding strains, its deputy governor said, suggesting a decision could come as early as this month as a resurgence of COVID-19 infections cloud the outlook.
Masayoshi Amamiya said Japan’s economy was recovering thanks to a rebound in automobile exports, which will help prevent a return to deflation.
But he warned that the lingering pain from the pandemic will keep any recovery moderate and companies under financial stress, with risks to the world’s third-largest economy being skewed to downside.
“The BOJ will closely watch the impact of COVID-19 (on the economy) for the time being and take additional easing steps without hesitation as needed,” Amamiya told an online meeting with business leaders in Akita, northern Japan, on Wednesday.
“We also plan to extend as needed the deadline for our programmes” to deal with the COVID-19 fallout, he said.
The BOJ eased policy in March and April mostly by ramping up asset purchases and creating a new facility to funnel funds via financial institutions to cash-strapped firms hit by COVID-19.
The package of measures was deployed as a temporary measure that expires in March next year, unless the BOJ decides to extend the deadline.
An extension has been widely viewed as a done deal, with the BOJ leaning toward a decision at its Dec. 17-18 rate review in December to reassure markets it is acting quickly to forestall a cash crunch.
Amamiya also said he wanted to launch “as quickly as possible” a planned new scheme in which the BOJ would pay 0.1% interest on deposits held by regional banks that improve their finances or consolidate while coping with years of low interest rates.
“The chance is very low that a new scheme to boost regional finances would affect interest rate formation in the market as a whole,” Amamiya said, referring to some concerns it could impact broader rate policy.
“Even if there’s any effect, it could be fully offset by monetary adjustment. In that sense, there’s a clear distinction from monetary policy.”
(Reporting by Leika Kihara; Additional reporting by Kentaro Sugiyama and Tetsushi Kajimoto; Editing by Chris Gallagher, Stephen Coates and Kim Coghill)