The Bank of Japan will likely offer a cautiously optimistic view of the economy in fresh quarterly projections due Friday, as renewed state-of-emergency curbs to combat the COVID-19 pandemic hurt consumption and keep growth heavily reliant on overseas demand.
The central bank will also unveil details of a new scheme to boost funding for activities aimed at battling climate change, putting it in line with its global counterparts in stepping up efforts to deal with the economic fallout from climate risks.
At the two-day policy meeting that ends Friday, the BOJ is set to maintain its yield curve control (YCC) targets at -0.1% for short-term interest rates and 0% for 10-year bond yields.
In new quarterly projections also due Friday, the board is expected to slash its economic growth forecast for the fiscal year ending in March 2022 from the current 4.0% estimate made three months ago, some sources have said.
The cut will likely reflect weakness in consumption and the impact of new curbs imposed in Olympic host city Tokyo from Monday through August 22, which have dashed policymakers' hopes for a solid rebound in July-September growth.
But the BOJ will stick to its view that the economy is headed for a moderate recovery, and may slightly upgrade next fiscal year's growth forecast on expectations that steady vaccinations will spur pent-up demand, said separate sources familiar with its thinking.
"The new state-of-emergency curbs may delay the timing of the recovery, but won't destroy it altogether," one of the sources said in a view shared by two other sources.
The BOJ currently projects growth of 2.4% for fiscal 2022.
The central bank will also follow up on a plan, unveiled last month, to create a new program focusing on climate change.
In an outline of the program due on Friday, the BOJ is likely to offer zero-interest, long-term funds to lenders that provide loans for activities aimed at combatting climate change.
The BOJ may debate several sticking points that underscore the challenge central banks face in addressing climate risks, such as whether to finance overseas loans made by domestic lenders. It hopes to launch the program by the end of 2022.
The central bank will also lay out other nonmonetary policy steps it will take on climate change, such as prodding lenders to boost climate disclosure and plans to conduct research on the economic impact of climate risks, the sources said.
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