TOKYO — The
As part of a government program approved at the end of April, commercial banks are expected to receive a credit guarantee of up to 100% on loans without interest or guarantees to small and medium-sized businesses affected by the pandemic. Friday, the Bank of Japan, the country’s central bank, said he would lend the commercial banks the necessary money grant such loans, also at zero rate.
It is part of a new 30 trillion yen ($ 279 billion) BOJ program that, along with previous programs, increases its support for business finance to 75 trillion yen ($ 698 billion). The BOJ has also developed direct purchases of bonds issued by large companies.
After Friday’s decision, BOJ Governor Haruhiko Kuroda and Finance Minister Taro Aso issued a joint statement for the first time since June 2016, saying they would do “everything possible to facilitate business financing” and are committed to “doing whatever it takes” to lift the economy to health.
Mr Aso told a press conference that it is important to show the world that the government and the central bank are working closely together.
Regardless of corporate finance moves, the BOJ has doubled the amount of equity funds it purchases, thereby supporting the stock market.
Some analysts have said even more aggressive measures may be needed to keep small businesses alive during the downturn caused by the pandemic. Some 174 Japanese companies filed for bankruptcy on Thursday due to the coronavirus, according to research firm Teikoku Databank.
The Fed and other central banks broke with the precedent by introduce new programs to help overthrow businesses until things get back to normal.
The Fed launched a $ 600 billion Main Street loan program designed to reach small and medium businesses. Under the program, a company would get a loan from a bank, which would then sell up to 95% of the debt to the Fed. The US Treasury is supporting any losses the Fed would suffer.
Japan’s central bank won’t directly hold small business loans on its books, but its measures are more aggressive than the Fed by other standards, said Izuru Kato, an economist at Totan Research.
“The total size of monetary easing is much larger in Japan and the BOJ has made the once taboo decision to buy stocks,” Kato said.
The BOJ’s balance sheet has outgrown the size of the Japanese economy due to years of aggressive easing, while that of the Fed, although growing rapidly, still accounts for around 30% of the size of the economy. American.
To encourage commercial banks to use the new program, the BOJ said banks would receive 0.1% interest on their central bank deposits, matching the amount of loans made under the program. Normally, these deposits would earn zero interest or minus 0.1%.
JPMorgan economist Hiroshi Ugai said government and BOJ policies have so far prevented a credit crunch, but more may be needed if the impact of the virus continues. One possibility, he said, is to follow the Fed by asking the central bank to directly hold small business loans.
For now, Japan’s economy may be more resilient than that of the United States because, as Totan Research’s Mr Kato observed, its large companies tend to keep their employees in times of downturn, although wages may be reduced. In contrast, tens of millions of American workers have lost their jobs.
In addition, Japan has a larger role than the United States with regard to government-affiliated banks, which can quickly provide direct loans to affected companies.
Write to Megumi Fujikawa at [email protected]
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