Japan Sets Interest-Free Loans

The Bank of Japan said Friday it will offer zero-interest funds to help financial institutions with their own push to address climate change that could threaten economic growth and financial stability, joining other central banks that are increasingly committed to the global challenge.

Kyodo News reported the outline of the new funding program to be launched later this year was unveiled after a two-day policy meeting at which the BOJ, as widely expected, maintained its ultra-easy monetary policy to buttress a fragile economic recovery. It slightly trimmed its growth outlook for the Japanese economy to 3.8 percent from a 4.0 percent increase projected earlier.

The Japanese central bank stuck to its program to keep borrowing costs low for companies and households by setting short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields around zero percent.

Under the new climate-related program, the BOJ will offer one-year, zero-interest funds to financial institutions for their loans and investments in such products as green bonds to tackle climate change. Rollovers will be allowed for an unlimited number of times under the scheme that will be effective until March 2031.

Governor Haruhiko Kuroda said he hopes the new program will serve as "leverage" for lenders and companies to ramp up efforts to reduce greenhouse gas emissions.

"It is going to require efforts spanning a long period and massive investments" to fight climate change, Kuroda said during a post-meeting press conference.

"From a long-term perspective, (climate change) would impact the economic structure, financial system, economic growth and prices. That's why we are doing what we can within the mandate of the Bank of Japan," Kuroda said.

A growing number of central banks have become keenly aware of the need to address climate change, but they differ on how far they want to get involved. The European Central Bank and the Bank of England are seeking to factor climate change considerations into policy, but the U.S. Federal Reserve is perceived as having reservations, with Chairman Jerome Powell saying climate policy is for elected officials.

In a calibrated move, the BOJ is underlining its commitment to addressing climate issues while seeking to remain neutral as a central bank by leaving it up to private-sector financial institutions to make decisions on climate-related loans and investments.

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