By Leika Kihara
TOKYO (Reuters) – Japan’s central bank on Friday reduced emergency financing adopted in the pandemic, but maintained an ultra-flexible monetary policy and extended financial easing to small businesses, cementing expectations that it will remain among the most stimulating central banks in the future predictable.
Bank of Japan (BoJ) President Haruhiko Kuroda said borrowing costs will remain low in the country even as other central banks raise interest rates, and emphasized that the reversal of emergency financing will not it was by no means a prelude to a complete withdrawal of monetary stimulus.
The BoJ’s decision, backed by cautious optimism that the economic damage caused by the coronavirus crisis is gradually healing, came hours later if the UK becomes the first G7 economy to raise interest rates since the start of the pandemic .
The central banks of the United States (Federal Reserve) and the euro zone (European Central Bank) have also moved towards reversing crisis-era stimuli, albeit to varying degrees, reflecting their divergent views –as well as uncertainty– about the increase of headline inflation.
Fears about the recent and rapid spread of the Ômicron variant of the coronavirus have also complicated the challenge for monetary policymakers, whose plans for monetary policy in a scenario of post-pandemic economic renaissance have been disrupted.
In a widely expected decision, the BoJ on Friday kept its target for short-term interest rates at -0.1% and for ten-year bond yields at around zero.
The BoJ has also extended the March 2022 deadline for its pandemic relief loan scheme by six months, with adjustments to the terms, to ensure that commercial banks continue to channel funds to small businesses.
But the BC decided to slow purchases of corporate bonds and “commercial papers” to pre-pandemic levels starting in April, in a nod to marked improvements in the financial conditions of big companies.
Kuroda said it will take about five years for the BOJ’s corporate debt to return to pre-pandemic levels.
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