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The Bank of Japan may extend several trillion yen in loans to financial institutions in July as part of a new program to combat deflation and bring about a sustainable economic recovery, sources said.

The scope and other details of the lending program are to be hammered out when the BOJ Policy Board meets from June 14 to 15, the sources said.

The BOJ wants the measure to supplement the government’s long-term growth strategy through 2020. The strategy is to be compiled by the end of the month.

At the previous Policy Board meeting in May, BOJ Gov. Masaaki Shirakawa and other policymakers decided to extend loans to commercial banks for basically one year at an interest rate of around 0.1 percent — the same as the BOJ’s key policy rate — to encourage banks to lend more funds to businesses in growth areas.

This is intended to strengthen the foundation for economic growth because it deems bold funding efforts in such growth industries as alternative energy and environmental conservation as essential for the economy to achieve a full recovery.

The BOJ is expected to limit the window for accepting loan applications to about a year, and is likely to allow the loans to be rolled over, the sources said.

Shirakawa has said the temporary nature of the loan program is intended to encourage financial institutions to use the program “as intensively as possible while it is in place.”

As for selecting the industries eligible for the loans, the central bank said it plans to respect private-sector banks’ approach to lending while emphasizing industries that the government and business federations regard as promising, the sources said.

As part of its growth strategy, the government is expected to aim for creating a new market covering not only energy and the environment, but also medical treatment, nursing care and robots as well as other areas involving advanced technology. It will also call for increased cooperation between the public and private sectors in achieving the target.

The basic policy of the growth strategy, announced late last year, shoots for annual real economic growth of 2 percent on average and the creation of 4.76 million jobs.

The National Policy Unit, a new body set up after the Democratic Party of Japan took power last year, has been working to cooperate with other ministries on specific measures to bring about more growth.

The BOJ has been concerned that the medium- to long-term potential growth rate of the economy is set to fall due partly to the shrinking population and sluggish productivity.

The new funding measure is intended to help cultivate new demand and to solidify the base for national economic growth.

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