TOKYO – The Bank of Japan on Friday presented a new loan facility to banks lending to projects or businesses fighting climate change, as the country tries to accelerate its transition to clean energy and accelerate its efforts to reduce emissions.
The new climate lending facility will allow the central bank to lend to commercial banks at zero interest rates for up to one year. Loans can be renewed without limit under the facility, which is expected to last until fiscal year 2030.
As an incentive, the BOJ will exempt reserves held at the central bank from negative interest rates equal to twice the amount it lends. The facility is only available for loans and investments in climate projects in Japan. To be eligible for interest-free loans, commercial banks must provide information on the loans they make in accordance with international standards.
The program turned out to be much larger than some economists had anticipated.
“Judging by the broad outline of the program, the BOJ intends to undertake a major climate finance program,” said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute.
Others say the installation was less ambitious than they anticipated. They had sought even stronger incentives, such as banks receiving 0.1% or 0.2% interest from the BOJ on loans granted, or the facility covering even loans and investments made abroad.
BOJ Governor Haruhiko Kuroda told a press conference that the central bank is focusing on promoting long-term investments in green projects, rather than producing a short-term push.
“Dealing with climate change requires significant investments and long-term commitments. We hope the new facility will encourage companies to start planning for such investments, including hiring the necessary talent,” Kuroda said, adding that the facility offers “sufficient incentives” for banks to increase green finance.
The big banks should be the ones who are able to take advantage of the new credit facility as they have more expertise in climate finance and are familiar with international disclosure rules. Small banks and regional lenders should be slow to catch up. Kuroda expressed hope that regional lenders will also benefit from the program, saying the emission reductions are a national project.
The move came after the central bank announced on June 18 that it would introduce the new facility this year. More specific details, such as the scale of the facility, will be defined by the fall and the program will begin by the end of the year.
The program is intended to be the successor to the outgoing facility for the promotion of growth support loans, which is due to end in June 2022.
Under the Growth Support Loan Facility, the BOJ has provided 0.1% loans for up to four years to banks that have funded projects seen as contributing to economic growth. The facility has an outstanding balance of some 7.5 trillion yen ($ 68 billion) in loans.
Economists say the BOJ goes hand in hand with Prime Minister Yoshihide Suga’s government and its clean energy push. The government intends to cut greenhouse gas emissions by about half by 2030, ban the sale of new gasoline-powered cars by 2035 and achieve carbon neutrality by 2050.
The Suga government has put in place a wide range of incentives to help develop the industry around clean technology. Incentives are offered not only to corporate borrowers, but also to ventures at risk. BOJ’s new climate facility could be made available to a wide range of investments, Kumano said.
The issuance of green bonds by Japanese companies is on the rise, reaching nearly $ 10 billion last year. But the amount remains derisory compared to those of the United States or Germany. The BOJ’s decision is expected to help accelerate Japan Inc.’s transition to clean technologies and make the country a climate leader.
At the same time, the BOJ decided on the same day to keep its main policy levers unchanged, including short-term interest rates at minus 0.1% and long-term rates at around zero.
A quarterly outlook report released separately showed that the bank’s nine board members expect the economy to grow 3.8% in fiscal 2021, down from April’s estimate of 4.0%, and 2.7% for fiscal 2022, compared to 2.4% forecast in April.
The revision of the projections for core consumer inflation has been more remarkable.
Board members now forecast inflation of 0.6% for fiscal 2021 instead of 0.1% as expected three months ago. For fiscal year 2022, inflation is projected at 0.9% instead of 0.8%. The sharp rise follows a surge in commodity prices amid a global economic rebound after the coronavirus crisis.